RBNZ says banks haven't been lending heaps partly because some businesses don't want more debt... yet; Meanwhile Grant Robertson eyes new ways to support medium-sized businesses as small businesses pile in for interest free loans from the IRD

RBNZ says banks haven't been lending heaps partly because some businesses don't want more debt... yet; Meanwhile Grant Robertson eyes new ways to support medium-sized businesses as small businesses pile in for interest free loans from the IRD

The Reserve Bank (RBNZ) says banks aren’t lending up a storm to businesses, which aren’t actually willing to borrow a whole lot.

RBNZ Governor Adrian Orr made the comment at a press conference following the release of the RBNZ’s quarterly Monetary Policy Statement on Wednesday.

Asked whether banks were being “courageous” enough with their lending through the economic downturn, Orr said the issue was both one of banks’ willingness to lend and businesses’ willingness to borrow.

RBNZ Deputy Governor Geoff Bascand followed up, saying: “The reported story from the banks is that credit growth is quite low.

“The wage subsidy has made a huge difference to cash positions for businesses over the initial period and so that’s helping to fund costs. Of course, it won’t last forever and they will need to both borrow and also get revenue in…

“But for now, there’s been restructuring of some loans, there’s been extensions… but not a huge amount of new credit growth.

“Some signs are starting to open up a little bit in our discussions with them [banks] - a little bit of inquiry going on in the housing market again.”

More timely data necessary

However, according to the New Zealand Bankers’ Association (NZBA), banks have increased their business lending substantially.

The NZBA reported banks provided $7.6 billion of “new” business lending to 13,432 customers between March 26 and May 13.

It hasn’t provided a breakdown of how many of these customers represent small businesses, but its figures indicate the average new loan size has been $565,813.

The NZBA defined “new lending” as “the value of new approved loans to customers”. Or “limits or limit increases” to lending.

Separately, the NZBA reported banks had restructured $5.0 billion loans for 2,780 customers between March 26 and May 13.

The RBNZ is only due to publish its April bank lending data on May 29.

According to its latest figures, the total value of business loans on banks’ books increased by $1.1 billion between February and March, to $118.0 billion.

Finance Minister Grant Robertson told interest.co.nz he hasn’t seen preliminary April data from the RBNZ.

Asked how he could then gauge the extent to which banks are pulling their weigh in the crisis, he said: “I continue to believe that we all have a responsibility here to do the right thing and to help New Zealanders get through. Banks are included in that as well. They have a social licence to operate.

“Most banks in New Zealand have been very profitable over the last few years. I’ve heard bank chief executives say they’ve got plenty of money to lend; they are in a position to help. So I hope they’re following through with that.”

Access to credit the issue, not the total amount of lending 

Robertson believed the issue wasn’t necessary the “quantum” of lending, but rather the availability of credit to a range of different types of businesses.

He earlier this month recognised his efforts to get banks to lend more freely, by getting taxpayers to underwrite 80% of loans to eligible businesses, wasn’t doing enough. As at May 9 banks had only approved 174 loans worth $23 million under the government’s Business Finance Guarantee Scheme, according to a Stuff report.

Robertson accordingly launched a new scheme through which taxpayers are underwriting 100% of loans issued by the Inland Revenue to small businesses.

Within the first couple of hours of accepting applications on Tuesday, the Inland Revenue received 6000 applications.

To receive a loan under this Small Business Cashflow Loan Scheme, businesses must have 50 or fewer full-time staff. They need to be "viable", despite having suffered a 30% drop in revenue in any 30-day period between January and June 2020, compared to 2019.

The loans are interest free if repaid within a year. Thereafter 3% interest is changed from the day the loan was taken out.

Robertson eyeing ways to further support medium-sized businesses

Robertson on Wednesday said he was looking at ways of providing more support to medium-sized businesses - “particularly as they get into trading again at Level 2". 

"I think at that point they’re likely to be more confident about going to the bank and talking about assistance,” he said, noting he could further tweak the Business Finance Guarantee Scheme.

“We will see in time whether or not there is greater demand. I suspect there will be at a different stage of the recovery."

Indeed, ANZ NZ CEO Antonia Watson at the end of April told interest.co.nz: "We never expected to get a mad rush on new lending [through the Business Finance Guarantee Scheme]."

"I think of it as a tool for the recovery and rebuild, because it is new term lending, it's not overnight working capital help. And term lending does come with more bureaucracy, or credit decisioning, than a temporary overdraft does.

“We're required under the agreement we have with Treasury to apply our normal credit processes. Albeit and this is where the [taxpayer] guarantee gives us the confidence, [under] our normal credit processes a lot of these loans probably wouldn't get approved."

Robertson on May 1 substantially broadened the Business Finance Guarantee Scheme to include agricultural businesses and very small businesses. He also removed the requirement for banks to have to take security for larger loans, and removed the requirement for businesses to have exhausted all other options with their banks before being eligible under the scheme.

RBNZ not considering writing business loans

Asked whether he believed the RBNZ needed to write businesses loans, Orr said, “at present - no”.

He explained the RBNZ is providing banks with term lending facilities to support cashflow and liquidity.

“It’s about us making sure the banks are fit for purpose and the banks are behaving as we would want and not adding to the problem, but assisting in getting out of the problem,” he said.

“The worst thing we could have would be a credit crunch on top of this recession,” Bascand said.

“This is also why we’ve talked about fiscal policy [government spending] being the obvious and appropriate, most important tool that is being used at the moment,” Orr went on to say.

“Because there you are directly going in to spending, investing and you’re relying less on competitive intermediaries to deliver the product.”

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41 Comments

Responsible lending commences... who woulda thought!

13
up

" and businesses’ willingness to borrow."
This is the perfect example of what's wrong with anything one might want to call' stimulus'!!
You can't FORCE people/businesses to borrow-and-spend. It doesn' matter if the cost of money is less today than yesterday etc.
Higher % rates and more lending restrictions CAN stop exuberance on the way up; to flatten inflationary tendencies, but the reverse is not a given, as we can hopefully all now see.
All 'emergency' levels of economic support do is confirm there is an emergency! In general, people aren't stupid. They know that when times get tough, it's time to hunker down and become more risk averse.. And the more 'stimulation' there is, the more they'll hunker down....

Yes, the argument that debt is good, is fundamentally a flawed premise.

Interest free is good, but the 3% a year out may make them pause, especially if the current conversation is that that rate might be very high. But at the same time the Government doesn't want business's borrowing too freely, but only what they need to survive, perhaps adjust their business model and preserve employment. A big problem is that the horizon is extremely murky. Should there be a set of criteria that would allow the business to have a loan written off?

The opposition have been arguing that businesses are being cautious about taking on more debt but would rather accept the cash from the public as a grant/handout.
My argument is that businesses in doubts over their own ability to pay a measly 3% p.a on today's borrowing after a 12-month moratorium shouldn't be getting anything at all from the taxpayers.

Not saying I disagree, but in the current environment even 3% of $100k could be a big ask for some small business's, so why would you say that if they can't sustain that they shouldn't get anything?

In many cases it is probably wiser to wind up the company and square away the downside risks.

Word from the trenches is businesses are being squeezed and everything else is spin.

Banks are also responsible for their shareholders so unlike government will process each loan on its merit and for them best bet is give loan on house with high deposit and this is what they will do.

Unless they are discouraged from doing that.
This Budget and follow-up regulator changes are pivotal.

No one discourage bank giving loan to housebuyer as no one wants the ponzi to fail, specially in NZ as only Rock Star economy equates to Housing.

Averages are for chumps. What's the median loan?

Its cheaper to knock down and build from scratch than to keep on patching up and repairing an old decrepit home. Same applies for this broken economy. Let it fail, rebuild a new system.....the damage is done!!!

Not in my case Foreign Buyer! I spent 3 years looking for a section in Welly that I could build on. I wanted to build a replica villa because I absolutely love them. I was looking at $700k for an even a remotely reasonable section, or $400-500k if I was prepared to build on a massive slope with poor vehicle access. Then $850-950k for the build and a bunch more for all the Resources consents. So realistically, looking at at least 1.7 million and the section would not have been in a central location because there just isn't land available.

I bought a beautiful double storey villa on 600sqm section with potential drive on access. Amazing harbour views near the Botanical Gardens so we can walk into the CBD. Ripped her back to studs, earthquake strengthened, insulated everywhere, put in hardwood double glazed double hung windows, radiator central heating, solid wood kitchen, extended to add extra bathrooms yadda yadda. Have spent so far 1.1 mil. Intending to spend a chunk more on a fancy colonial style double garage with a studio apartment over but when all is said and done, probably will have spent 1.45 mil. Will have retained all the beautiful original features and a way better location than any new build.

I take my hat off to you, GN. I have renovated several old houses and have just finished a (like-for-like) pre-kitchen gut, reline, re-window, re-weather-proof and replumb for a relative. Nothing's level/plumb/straight, nothing's square, and everything's ten times harder than on a new build. But the grace and beauty of the old carpenter-led proportions are rarely achieved on even the best new-build replicas (replicae? replicatrix?)

It's certainly a labour of love! I've owned new builds, bought off plan even and I was never happy with the build quality or lack of character. I've been collecting architectural antiques here and there over the years, and now I am using them in the reno. There were almost none left internally when we bought the place, so i'm having fun putting them back in. Makes me very happy to be restoring a piece of Kiwi heritage.

Only possible because of the renovated house was still within the price range.
The same thing in Lower Hutt is not possible. I'm a builder and did my own on the Hutt Velley and it would have been cheaper to build and a higher selling price at the end. The bank would lead for a renovation but not a new build.
I agree that the older houses are much nicer to live in, new houses feel superficial to me, no character.

Eh? The house wasn't renovated. I'm doing the renovation. The house was uninsurable so we had very little competition. No one could get finance on the house, hence why we got it below RV. In Welly, if you can get a munted character house, with harbour views, good sized section, south facing, drive on access, walkable to the CBD, it's going to be cheaper to do the renovation, than build new or pay for someone else's renovation but that criteria is rare as hens teeth. I spent 3 years looking (ask TTP he always teases me about it) and the house I bought was the only one that came up that met this criteria, where the numbers stacked up in that entire time!!! I was in Thailand on holiday at the time, saw the house come up, realised the opportunity, got on a plane a flew home hahaha. I have no idea about the Hutts.

Banks are among the most government regulated spaces in the economy.

If the argument is the banks are "broken" then the clear implication is that governments mass of red tape is the root cause.

And if more government is the answer then we are caught in Einstein's observation that the current problems cannot be fixed with the same thinking that created them

There seems little evidence the government has any qualifications to fix its own broken regulatory constructs.

Perhaps it is not the regulation but where it is aimed?

I am sorry but I am not quite sure what you mean.

I don't take advice from people who think God planted dinosaur bones to throw everyone off the scent

1. I didn't offer you advice.

2. Judging people instead of ideas is called bigotry.

3. The fossil record we have now proves Darwin evolution is impossible.

Not that bigotry cares about facts.

When has there ever been a recession that wasn't always accompanied by a credit crunch? What an utterly absurd statement.

Especially when household consumption and business investment growth numbers leading up to the recession were artificially inflated by credit expansion and population increases, particularly in case of NZ, Aussie and Canada.

how household consumption can be "artificially" inflated if it is from immigration? surely the consumption of newly arrived families is as real as consumption of the older residents? Or do you mean that there have been some artificial immigrants?

I think, the right way to phrase it would be... GDP growth has been artificially inflated by immigration. Artificial because its relying on population growth rather than productivity growth. There are plenty of times in history when we have had productivity gains at the same time as population gains but some of that is about access to natural energy resources. The cheap, easily extracted energy days are over.
I don't think we need to go over the causes of recent asset price inflation anymore but immigration was part of that too.

That is correct. GDP stimulated by immigration is factually correct. But why is it "artificial"? growth from population is just as real as growth from productivity. It is lower quality no doubt (as it does not increase the per capita GDP), but it is real. And NZ per capital GPD has not fallen (at least yet) suggesting that the population growth has been detrimental (again at least up to now).

However, GDP growth from immigration does not improve (and in reality may deteriorate ) the quality of life of the older residents (except the wealthy few), and thus people are understandably unhappy about it. They have to face its downside (more demand for public goods without much increase in its supply, more environmental damage, more competition for jobs and houses etc) without sharing its economic rewards themselves.

Errrrm? You know the P in GDP stands for product right? If you are importing a good percentage of highly skilled immigrants then sure, you can increase productivity but that is not what has happened. If you are just playing a population numbers game, you are not increasing productivity, you are just increasing demand, if you are importing low skilled workers, then you are potentially decreasing productivity, which just pushes the costs of stuff up because if there is less product (ie the P in GDP) to the demand...so then you have a low wage, low productivity culture, where you have to import engineers and experts temporarily from overseas every time you want to get anything done. Oh look, i'm describing New Zealand!

Well, if you read my comment i said that per capita DGP has not fallen. It has increased. slower than Australia, but it has been slower than Australia from 1970s. I am not saying immigration is a solution, specially mass, unskilled immigration. But i want you to look at the factual data on GDP per capita , it has been about the same Since 1987 (see here: https://tradingeconomics.com/new-zealand/gdp-per-capita-growth-annual-pe...).
So while immigration have not cured NZ economic problems, it has not detoriated its per capita GDP either (not that it could not have, not that it might not in future, but it has not to date). And looking at this the nz productivity problem started way before mass immigration was a thing.

Yup. Agreed that productivity is more complicated than just immigration. But I also didn't say otherwise. I was just explaining why some people refer to immigration as "artificial growth". Not all immigration is equal, and not all growth is equal. GDP is a blunt measure. Same applies to debt. If you are pumping debt into your economy, it might improve your annual GDP numbers, but is that actually real growth? No its not. And the debt was only worthwhile if it was spent on something that will increase GDP in the future enough to pay for itself, and obviously the debt has not been productive because it has not paid for itself, it has just increased. It's unsustainable in the same way as immigration expansion is. You have low domestic growth potential and high pension obligations, so you import immigrants to provide the demand and tax base to keep the machine turning. But unless those immigrants are doing something to increase productivity beyond just being another average, debt fuelled consumer then you are just perpetuating the same problem and kicking the problem down the road. IMO that isn't sustainable. It helps in the short term, maybe even for decades but even if GDP per capita has remained static since 1987 (which is not how I read that data btw, that chart has wild swings and the GDP curve has been headed down for several years now) does that matter if everyone is saddled with piles of debt and has seen little to no income growth for a decade? Every country in the world fiddles their GDP numbers but if you cut through all that what does NZ actually produce? It produces lots of food, some wood and not much else. Its not pushing any envelopes with science, engineering or technology, it's not creating digital innovations or revolutionary services. It's not producing world leading thinkers or inventors. Why is this? Kiwi average IQ isn't lower than our western advanced economy counterparts. Food is very important and I think we should cherish farmers and protect them. The current system and economy is rigged against them now. But had it not been for high immigration what would NZ's GDP have looked like? The tertiary education system, construction industry etc... what would their growth numbers have looked like? If debt levels were not 164% per household, what would growth look like?

Like a commentator the other day.
Its solvency, not liquidity.

The collapse in demand is staggering.
Investment has dissolved.
Capex was first to go, last to come back.

For example. Right now, who is reviewing this years, or preparing next years budget, and suggesting increased expenditures, on anything.

More so if you are a subsidiary of an overseas parent.

Agreed.

Our local council.

Businesses are trying to avoid insolvency so more debt is not likely to be all that useful.

There are a few things they can do, you're seeing larger businesses fire 10-30% of their staff (typically non-revenue generating staff obviously) as a precautionary measure and reduce expenditure on projects. The biggest thing government can do for businessess is stimulate consumer demand by getting cash into their grubby little mitts.

what happened to first principles Dont throw good money after bad!

the big problem with the wage subsidy - it did not really help business -- who with no income were still left trying to top wages up for staff who clearly dont have a job going forward -- at the moment its costing over half a billion a day -- and all it is really doing is keeping unemployment figures down

Today needs to be all about businesses and business survival in order to create jobs going forward - and get rid of wage subsidy unless a business can show a clear route back to a sustainable job in the next 12 weeks - otherwise its just wasted money

Exactly, kp. The wage subsidy assisted cashflow, in that it was paid to cash-at-bank within days, whereas the employee draw-down of that advance lasts 12 weeks. But all the time, zero or minimal revenue...so fixed costs (rents, rates, leases on plant and vehicles, interest on existing debt) rolls on and if deferred simply adds to FP liabilities. The real crunch comes in the 8-12 weeks point - now, in short - when planning starts to separate the wheat from the chaff staff-wise, review the overall viability of the show, and plan for What Happens Next. 'Next' comes down to four choices:

  1. Fold 'er up entirely and take what proceeds one can from the fire sale
  2. Carry on at a level commensurate with likely revenues - which is likely to be a fraction of Pre-WuHuFlu
  3. Look for an M&A sugar-daddy (a variant of #1) to take over, but stay on as advisors or part-owners
  4. Declare bankruptcy and walk away from the wreck

Put yourself down as major creditor & bring in your liquidator
Changes everything.

I think the wage kicked the uncertainty ball down the road for 12 weeks, which at least paused the consequences of the lockdown.

It was probably asking too much to expect it solve any root issue with business collapse brought about by destruction of revenue.

Well personally as someone with a large TD, I don't want banks to be lending even more money to stupid people who are donkey deep in debt thanks. The banks are a business and its not there job to start bailing out those in over their heads when the economic situation suddenly changes. Please don't start that "but the banks let me do it" rubbish, you decided to take on the debt not the banks. Time for some personal responsibility, its been lacking for a decade and its got us into this mess.

Cool, if the people who allowed and encouraged the unfettered explosion in population, strangled housing supply mechanisms and created the explosions in house prices over the last two decades are prepared to step up and pay us back for the damage they did, then I'm happy to wear my part of taking on more debt that I probably should have.

Or is this not how this 'personal responsibility' thing works?

Bank bashing.

Must be an election year.

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