EY: Middle-market confidence in access to finance shaken by fears of a credit crunch from major Australian lenders

Tuesday, 31 July 2018

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  • Twenty-four per cent of Australian middle-market companies nominated access to credit as the key external risk to their growth, up from 6 per cent in 2017
  • Middle-market confidence buoyed by view that an American-China trade war could create opportunity for trade growth in the region

Data released today by professional services firm EY reveals the Financial Services Royal Commission is having a worrying effect on Australian middle-market business leader’s perceptions about the availability of finance.

Despite these concerns, a bullish 45 per cent of Australian middle-market business leaders surveyed for the EY Global Growth Barometer are anticipating growth of more than 10 per cent this year – exceeding the growth expectations of regional powerhouses India, China and Singapore, and reflecting Australia’s strong position to capitalise on a potential America-China trade war.

Despite these ambitious growth plans, concerns remain about the cost and availability of credit, which ranked as the biggest external threat to growth for respondents for the first time. In 2017, only 6 per cent of Australian respondents believed this was the key risk to their growth, while one quarter of respondents nominated this as the key risk to their growth in 2018.

“This data demonstrates that there’s a real perception among our medium-sized businesses that banks have started a pre-emptive lending crackdown that is increasing the cost and reducing the accessibility of direct financing,” Rob Dalton, EY Oceania Growth Markets Leader said.

Concerns around the difficulty of accessing credit are driving three quarters of Australian middle-market companies to consider an IPO to obtain growth capital, a portion that is significantly higher than their global counterparts, where less than half of respondents are considering an IPO.

“Companies are exploring their options and alternative forms of finance beyond bank lending. There’s a huge amount of private capital out there looking for a home and middle-market businesses are looking to access this to support their growth,” added Mr. Dalton.

Half of respondents ranked cutting corporate taxes as the best thing government could do to boost growth, higher than the 29 per cent of global respondents who cited this.

“Policymakers should ask themselves why Australian firms are concerned about cash-flow, credit availability and corporate taxes - we need regulatory conditions which promote growth, rather than dampening it. We need to allow them every opportunity to expand and create jobs,” Mr Dalton said.

“We’re continuing to see the impact of increased regulation of financial services driven by continued post-GFC measures and an increased focused on culture and conduct through activities like the Royal Commission. While it’s important the sector is well regulated, we need to make sure we’re providing a framework that encourages growth for our middle-market companies, the engine of our economy,” Mr Dalton concluded.

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About the Global Growth Barometer

EY Growth Barometer is an annual survey that explores middle-market leaders’ growth strategies and how they are being delivered across a wide range of capabilities. These capabilities are linked to the EY 7 Drivers of Growth – EY’s framework to help companies accelerate growth. EY commissioned Euromoney Institutional Investor Thought Leadership to undertake an online survey of 2766 C-suite (60% CEOs, founders or managing directors) in companies from 21 countries and with annual revenues of US$1m-US$3b. The survey was conducted from 15 January-1 March 2018. EY further invited its EY Entrepreneur Of The Year™ alumni from across the globe to take the survey. The survey was available in English and six other languages. Further in-depth interviews were carried out during March - April 2018 to provide additional specific insights.

About EY

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This news release has been issued by Ernst & Young Australia, a member firm of Ernst & Young Global Limited.

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