SMEs and SMSFs stranded by NAB

George Lekakis Consumer lending

National Australia Bank is preparing to rein in its exposure to SMSF borrowers next month after alerting mortgage brokers to an aggressive tightening of eligibility criteria for loans to self-managed super clients.

In a notification sent to brokers this week, the bank has advised it will no longer accept loan applications from SMSF clients with net superannuation assets of less than A$5 million.

The new requirement will take effect from 29 March.

“We regularly review our policies and products and after careful consideration of customer outcomes, we have decided to change the parameters for business lending to SMSFs,” the bank told brokers in a letter.

“Lending to SMSFs is more complex and requires additional consideration and for this reason NAB has altered the SMSF offering to ensure our customers are in the best position to obtain their desired financial outcomes.”

According to the new requirement is likely to crunch NAB’s current growth in the SMSF loan category by 80 per cent.

“Demand for SMSF loans and other niche credit categories has been in decline for some time,” he said.

“Banks such as NAB are writing only a small volume of SMSF business and I think the regulatory focus on this type of lending has alerted lenders to potential reputational risks.

“The decision to restrict SMSF lending to borrowers with at least $5 million in super assets would probably knock out 80 per cent of the applications they’re currently receiving.”

The diminution of SMSF lending activity could be even more extreme given that the bank will tighten other lending parameters in the last week of March.

These include the following new policies:

•    applicants will need to have been a NAB customer for at least two years;
•    the minimum loan amount available will be $1.5 million;
•    SMSF applicants must be in accumulation phase for the duration of the agreed loan term; and
•    no interest-only repayment periods

The overhaul of SMSF lending policies could have a negative impact on NAB’s SME customer base.

In the last decade many small businesses have acquired retail and commercial premises through superannuation vehicles because it has proven to be tax effective.

However, the tightening of the SMSF loan parameters could force some of NAB’s SME clients to other lenders willing to offer more cost-effective lending options.

Small business borrowers could gravitate to the Bank of Queensland, which continues to offer SMEs the option of acquiring residential and commercial property through superannuation structures.

BoQ markets business term loans and commercial rate credit to SMEs on both interest-only and P&I terms.

The main restriction on the BoQ offers is that maximum loan to value ratios are set at 55 per cent.