Our banking double standard

It could change overnight, but bank behaviour is not consistent with the big general recovery being predicted by stock markets in the US and Australia.

On the surface all looks well. Last night the D&B business survey showed that not only are sales and profits levels improving from the lows of mid 2009, but we are seeing levels of business confidence not seen since the middle of the decade. And to that we can add high levels of consumer confidence.

In the US, McDonald's is booming and the rate of job losses is declining. In both the US and in Australia bank profits are rising. So what's the problem?.

Let's start with Australia. Readers will remember Stockland chief executive Matthew Quinn revealing in his KGB Interrogation that banks were not lending to retailers and Stockland and other shopping centre owners were having to be bankers to their tenants.

The D&B Survey shows that Quinn was spot on. While half Australian executives said they had experienced no change in their access to credit, our retailers were experiencing difficulties, with a very high 40 per cent actually reporting less access to credit. Only 20 per cent of retailers had better access, while for 38 per cent there was no change.

One of the reasons why we have such a strong housing property market is that banks are restricting loans to property developers but spraying housing buyers with loans. There is a shortage of dwellings, so buyers armed with bank cash want to buy, but the industry can't create sufficient new dwelling stock partly because of bank lending policies.

In the US, their banking system has deeper problems. The Federal Deposit Insurance Corporation (FDIC) quarterly banking profile showed the number of "problem" banks rose 27 per cent in 2009 to 702 – the highest level since 1993.

According to Yahoo, Richard Suttmeier, chief market strategist at Niagara International Capital, more than half of the nation's roughly 8,000 banks "can't lend anymore" because of rising levels of bad loans on their books. The problems are especially acute in construction and development and commercial real estate loans because many of these loans are delinquent. Banks don't have the repayments coming in to lend out and thus are content to mostly sit on deposits.

As I see it, while the Wall Street banks are resuming their big executive bonuses, out there in the heart of the US half the banking system is frozen. So life is tough and while that continues US recovery statistics will continue to be varied.

In Australia, we have nothing like the US situation but our banks are over-exposed in certain areas like small retailers and property developers, so they adopt strict criteria for these loans.

As the economic recovery proceeds the banking attitude may change but right now it's a deep problem because the retail link in the business chain is being starved of credit and house prices are exploding forcing up interest rates partly because banks are boosting demand but squeezing supply.

There is work to be done in both the US and Australia.