A bank that doesn’t lend money is as useless as a pub with no beer.
And, as with the story behind Slim Dusty’s 1957 hit record written for him about the Taylors Arm pub in NSW, the bank question is not theoretical.
They are losing their purpose.
Either deliberately or because of overtight government regulation, banks are struggling to fulfil their primary function of taking deposits in one hand and lending it with the other.
A lending drought has developed at both the top and bottom of the banking process. The most obvious effect of this is on families that have saved to buy a house but are unable to secure a loan.
ANZ boss Shayne Elliott is the latest banking bigwig to say that restrictive government policies are making lending harder, picking up a point made earlier this year by National Australia Bank chief executive Ross McEwan.
Both men say customers who once easily qualified for a housing loan are now being pushed into the higher-risk fringe banking world, where lenders operate under consumer protection laws but lack the safety of a government-issued banking licence.
Tight new laws following a period of overly lax bank lending – with loans being made to people who had no hope of repaying – have caused the legal pendulum to swing too far the other way.
One of the high hurdles for banks and borrowers is the need for a customer to demonstrate that he/she will be able to service the debt if interest rates rise by 3 per cent; a test that seems unnecessary in the current environment where interest rates are more likely to fall than rise.
At the other end of the spectrum are major Australian resources projects, which can’t get loans from Australian banks either because local banks are shying away from the risks associated with mining, or because of an aversion to upsetting environmental activists.
Two deals involving mining projects in Western Australia are the latest example of banks being conspicuous by their absence.
Liontown Resources’ Kathleen Valley lithium mine, which has the backing of iron ore billionaire Gina Rinehart, secured its latest line of finance from South Korean company LG Energy Solutions.
Chalice Mining, meanwhile, was forced to secure a funding arrangement with Japan’s Mitsubishi Corporation for its Gonneville critical metals project on the outskirts of Perth.
It can be argued that early stage mining projects might not be suitable for most banks, but with state and federal governments claiming the country needs to embrace future-facing critical and energy metals, it’s surprising more local banks aren’t involved in either project.
Another example of what’s gone wrong with the banking sector can be traced back to the demonising of bank executives for lending to the coal mining industry in Queensland and NSW. The result has been a wholesale bank withdrawal from coal lending despite it being Australia’s second biggest export.
Saying ‘no’ to coal was a lot easier than saying ‘yes’ and then being forced to explain to noisy activists that it was good business and perfectly legal.
The interesting point about local banks quitting coal is that it hasn’t made the slightest difference to the amount of coal mined in Australia. Instead, it has helped transfer good clients to international lenders, and played a role in transferring ownership of a local industry to foreign investors.
A perfect example is the success of Stanmore Resources since control was secured three years ago by Indonesian investors keen to grow the production of coking coal: an essential material in making steel until someone invents a better process.
From mining minnow status with a share price around 65 cents in 2021, Stanmore is now at $3.90, valuing it at $3.5 billion and ranking it as the 125th biggest company listed on the ASX.
It could get better for Stanmore and Whitehaven Coal, which has also struggled to get local banking support.
Into the breach have stepped the international investment banks, which have been quick to fill the funding gap, given coking coal’s place as top commodity on Morgan Stanley’s latest hot commodities list.
What connects coal, critical metals and home loans is an Australian banking industry that has lost its way.