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Bank Crackdown Has Money Managers Eyeing Corporate Finance

Australian money managers are finding an opportunity in enterprise and small business lending as regulators crack down on the country’s traditional banking industry.

Reports in Bloomberg Friday (Aug. 3) said corporate lending is a renewed focus for funds, like IFM Investors Pty and Metrics Credit Partners, looking to take advantage of corporates seeking funding from sources other than big banks. Australia also implemented a three-month bank-bill-swap rate increase, which, reports said, could force banks to pass on higher costs to corporate borrowers.

That rate increase, as well as rising costs for banks to borrow offshore, has asset managers swooping in to grab corporate loan market share.

IFM regional head of Asia-Pacific, debt investments, Scott Barker told the publication that these “stresses” in the financial services industry “will create some opportunities for us to be an alternative source of finance.”

Andrew Lockhart, managing partner at Metrics, says that banks are also “distracted” by ongoing regulatory inquiries into the industry and claims of mistreatment of business borrowers.

“Regulators are putting pressure on the banks,” he said. “Given the increase in the cost of funding banks are exposed to, it makes it more marginal for them to continue lending to corporates. Unless the corporates do a lot of other business with banks that generate enough income, they just can’t make enough return on equity.”

Earlier this year, the Commonwealth Bank of Australia was hit with a record fine in relation to a money laundering scandal; the sanction is the largest ever issued to a corporation in Australia’s history. The bank was found to have failed to notify regulators of suspicious transactions that posed “a potential risk of terrorism or terrorism financing,” according to court documents.

Regulators are also cracking down on unfair small business lending practices among top banks. All of Australia’s Big Four banks admitted to misconduct earlier this year as part of a Royal Commission probe of the industry.

Reports noted that, while funds may not always be competitive against banks on price, they can offer longer and more flexible terms than the typical three- to five-year terms offered by traditional banks.

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