Big banks, challengers and brokers are piling into commercial lending
Following the news coming out of Westpac today, it’s safe to say business lending has become the new frontline in the battle for market share among the major banks.
According to reports, Westpac intends to strip back its army of in-store tellers, replacing them with hundreds of new bankers in its home and business lending departments.
Sacked or retrained tellers will reportedly be replaced by in-branch ‘concierges’ who will assist customers who fancy some face-to-face contact with their banks with Westpac’s digital banking app.
This restructuring will reportedly cost around $200 million over the next three years.
Westpac has been open about its bullish plans for the business lending segment. Earlier this month, it unveiled a multi-year strategy of aggressive banker hiring alongside digital investment.
The bank has a new business lending origination platform, BizEdge (AI-powered of course), aimed at getting business approvals out the door quicker.
Interim results published in May suggest the plan is working – business lending was up 14% compared to the first half of 2024, far out pacing total loan growth of just 5%. The vast majority of volume was in the SME segment.
These wins have made Westpac the fastest-growing business lender over the past 12 months, according to Australian Prudential Regulation Authority (APRA) data, even though it still trails CBA and Australia’s largest business lender NAB by a wide margin.
With higher margins and fewer regulatory burdens compared to the residential mortgage space, there is a clear rationale behind targeting the commercial segment. Doubly so, given how little wriggle room there is to compete on residential mortgage rates.
But Westpac isn’t the only one getting the memo.
Banks, non-banks, brokers pile in
CBA is also increasing its focus on business lending, aiming to grow its market share and challenge NAB's position as the largest business bank.
This push involves channeling more capital into high-priority sectors like infrastructure, healthcare, and housing supply, and increasing non-property-secured lending. The strategy has driven significant growth in CBA's business loan book, with recent quarters showing accelerated expansion and lower loss rates, contributing substantially to the bank's profits.
"We’re seeing strong demand for business credit, and the pipeline looks robust into the end of June," CBA chief executive Matt Comyn said in May. Comyn teased ongoing investment in sectors aligned with the government’s economic agenda, line housing supply and critical minerals.
But NAB, with its dominant position, is unlikely to cede ground without a fight.
As UBS analyst John Storey said in July: “Business banking, in our view, remains a growth vector for the Australian banking sector, and NAB is well-placed to benefit from this despite recent market share losses.
“Digital lending should drive improved efficiency and client outcomes.”
Meanwhile, alternative lenders are penetrating the SME market with increasing force, particularly at the lower-value end of the spectrum.
According to a recent SME Growth Index Report from ScotPac, more than half of Australia’s SMEs are now planning to use non-bank lenders to support new investments. In 2014, that number was just 7%.
SME owners cited faster approval times, more flexible lending criteria, and a wider array of funding options as the primary reasons for this shift. Meanwhile, the proportion of SMEs planning to use traditional bank lenders dropped from 42% to 30% over the past year.
Brokers play a huge role in the surge in non-bank business lending.
Almost all commercial loans from non-bank lenders originate through brokers, a direct result of these lenders lacking extensive retail networks.
Although non-bank lenders typically charge higher rates, their flexibility has become a game-changer for Australian small businesses that have struggled to access finance through traditional channels.
The banking majors are hobbled by a lower appetite for risk, leaving a substantial piece of the commercial market up for grabs. The challengers are more than willing to lap it up, albeit with a higher price tag for borrowers.
Brokers, meanwhile, are diversifying at record pace, with the number of mortgage brokers also writing commercial loans increasing by 24.21% in the April 2024 – September 2024 period, per the Mortgage and Finance Association of Australia (MFAA)’s latest Industry Intelligence Service report.
The running assumption is that brokers account for between 30% and 40% of commercial lending volume, although NAB’s very own Chris Thomas reckons the figure is approaching 50%.
“And if you factor in the volume coming through private lending channels, it may already be there,” Thomas told MPA in August.
At an estimated size of $100 billion there is clearly a huge commercial lending market for the taking. Westpac clearly wants a bigger piece of the pie – the problem is, so does everyone else.
