Small business will be the most hotly contested segment of the banking market in the year ahead, Commonwealth Bank executive general manager for local business banking Symon Brewis-Weston said yesterday.Commonwealth Bank continues to invest in its small-business banking service, Local Business Banking, Westpac has adopted a similar model and National Australia Bank is keen to extend its traditional corporate and middle market business banking strength into small business.The banks are focusing on small business because they see it as a source of strong demand. The Reserve Bank's latest Statement on Monetary Policy, issued a month ago, reported that in the September 2009 quarter intermediated business credit contracted at an annualised rate of nine per cent. The RBA said the contraction has been more pronounced for large businesses than for small, "likely reflecting large businesses having better access to new equity capital to pay down debt."Brewis-Weston said:  "Institutional demand is falling and corporates and middle market businesses are standing still. The small business end is growing."For a lot of our small business clients the global financial crisis had no significant impact. Most small businesses have loans secured against residential property and house prices have held up well."We have not changed our credit policies for this sector and the performance of the SME book has been strong."Brewis-Weston said Commonwealth has been the price leader in the sector. It offers a term loan secured by residential property with a rate just 50 basis points over the standard variable home loan rate. Almost two-thirds of the bank's SME customers use this type of finance.The bank's Local Business Banking initiative was launched in the middle of 2007, pitching an upgraded call centre service, more relationship managers and more business banking centre services at companies with up to $10 million of turnover.Brewis-Weston said: "With a change like this you have to make the changes to the business culture, then get consistency of execution and then get customers to recognise that the bank is different."It is only in the past six months that we have started to grow above system."Commonwealth is also getting higher ratings from small-business customers. The bank has had the biggest increase in customer satisfaction of the big four banks in the latest Roy Morgan Research small business owners survey, with a rise of 4.3 percentage points over the year to September.Brewis-Weston said the telephone platform was getting an upgrade. The other big investment of the past year was product simplification. Commonwealth offers its SME customers a suite of 13 products, down from 32."A loan is a loan is a loan. Service is the real differentiator. By reducing the product set you take a lot of the complexity out of applications. It costs less and it improves service."