Home loan bias bad for business, says NAB exec

The controversial comments by National Australia Bank's head of business banking, Joseph Healy (left), are likely to deepen concerns over the sustainability of the nation's housing boom and whether it has come at a cost to business investment.

The torrent of funds flowing into housing might also be enlarging "asset bubbles" by fuelling excessive investment, Mr Healy said.

Since the start of the financial crisis, small and medium businesses have found it harder to access credit to cover day-to-day operations.

A recent Senate report found that those that had secured financing were paying substantially more for loans as banks increased interest charges.

Earlier this year, former BHP Billiton chairman Don Argus told BusinessDay that Australia's big banks were becoming little more than "giant building societies" because of their bias towards lending for housing.

About 60 per cent of the lending books of banks such as Commonwealth and Westpac are now tied up with residential mortgages. While both have decided to pump up their mortgage books, their exposure to the sector has been supercharged by acquisitions such as Westpac's of St George Bank.

"A bias towards allocating capital to home lending may mean there is less credit to allocate to business, the most productive area of the economy," Mr Healy told an American Chamber of Commerce lunch in Sydney.

"This is ultimately bad for growth, bad for competition, bad for jobs, bad for business and, in the end, bad for Australia."

Compounding the problem has been the scaling back of operations by smaller banks and the withdrawal of some foreign banks from the market due to the squeeze in global funding markets.

Mr Healy conceded that new global rules on capital were encouraging banks' home lending.

Home lending is considered safer, and capital can be geared more aggressively to support it than loans to other sectors.

The rules on capital made it more profitable for a bank to provide a loan for a weekend holiday house than for a small business, he said.

"The lack of access to finance has been a problem, but also the cost of finance," said Peter Strong, executive director of the Council of Small Business of Australia.

Banks now charged many small businesses as much as 2 percentage points more than the standard mortgage rate, Mr Strong said.

Mr Healy's comments appear to be at odds with NAB's efforts to expand its home lending book by selling mortgages at a discount to its rivals.

But Mr Healy said it was a "matter of balance".

He noted that most of NAB's lending book was already tied up in loans to business, and the bank had a modest share of the nation's mortgage market.