Australia’s small businesses are at increasing risk from highly indebted households, which face “potentially catastrophic” impacts as monetary policy tightens, according to the head of a lender to small and mid-sized firms.

Judo Capital Holdings Ltd. Chief Executive Officer Joseph Healy plans to make his criteria for testing business loan applications more stringent as a result, using a minimum repayment assumption of 3% above current interest rates, he said in an interview.

While consumer confidence has plunged, business sentiment has held up after the Reserve Bank of Australia began lifting borrowing costs last month. Still, Healy, a former head of National Australia Bank Ltd.’s unit that lends to businesses, said pressures may build on small and medium sized enterprises in some areas, without specifying which sectors, as the impact of reduced consumer spending from a ramp up in mortgage rates flows through the economy.

Reserve Bank Governor Philip Lowe has said the overall picture for the country’s economy is “pretty resilient” as the central bank works to rein in inflation that’s curbing consumer’s spending power. Household debt sits near a record high at 186.2% of income.

Healy expects Australia’s main policy interest rate will hit 2.5% by the end of the year, while market pricing indicates it will be closer to 4%.

Source:
courtesy of BLOOMBERG

by Harry Brumpton

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