By heavily favouring the home loan sector over lending to business, banks are undermining long-term economic?growth, cautions a NAB senior bank executive.

According to the Sydney Morning Herald, comments made by head of business banking Joseph Healy indicate the nation’s mortgage boom is taking away from investment in business.

“A bias towards allocating capital to home lending may mean there is less credit to allocate to business, the most productive area of the economy," Healy told an American Chamber of Commerce lunch in Sydney.

"This is ultimately bad for growth, bad for competition, bad for jobs, bad for business and in the end bad for Australia.''

Lending to the sector has tightened over the last two years as the risk of losses has climbed.

The Australian Financial Review reports that NAB has also rejected claims its discounted standard variable rate is funded by higher business loan rates, as it seeks to increase mortgage market share.

Like us on Facebook

A recent survey by JP Morgan and Fujitsu Australia indicated that small businesses would continue to bear the brunt of higher funding costs, as pressure on banks increased.

About 90% of all lending to small and medium-sized businesses comes from the major banks. NAB controls the greatest share at 26%, followed by Westpac/St.George at 25%, CBA at 24% and ANZ at 15%.