ANZ New Zealand, the country’s biggest bank, says it is keen to support local medium sized businesses that have the confidence to invest for growth despite anecdotal suggestions the big Australian owned banks are clamping down on lending growth to local businesses after lower profits and a push, in the ANZ Group's case, into Asia.
In an interview with interest.co.nz after the release of ANZ’s fourth annual Privately-Owned Business Barometer, the bank’s commercial managing director Graham Turley said ANZ was “extremely" supportive of the sector surveyed by the Barometer, which incorporates companies with annual turnover of between NZ$2 million and NZ$150 million.
ANZ New Zealand's Australian parent, the ANZ Group under CEO Mike Smith, is aiming to make 20% of its profit from the Asia-Pacific region by 2012 and is eyeing potential acquisitions in South Korea and Indonesia. In the six months to March it made 13% of its profit in New Zealand, 74% in Australia and 13% from the rest of world.
Among anecdotal evidence of a clamp down on lending to New Zealand businesses by the major Australian owned banks, Kiwibank chairman Jim Bolger recently noted an email he received from "a person of substance" in the agricultural sector. The person wanted the state owned bank to support that sector, Bolger said, because "the other banks" weren't investing which was holding back New Zealand’s core industry'.
But Turley said ANZ New Zealand was keen to support the medium sized business sector here.
“New Zealand’s future is based around these businesses performing and performing strongly,” Turley said. “On the whole they’re extremely well managed. There’s a lot of passion, a lot of innovation in this sector and once these businesses can get the confidence to want to invest, or want to require more finance, we will definitely be there in support for them.”
In its recent half-year results ANZ New Zealand, which includes the National Bank, said it expects overall lending growth to bounce back from its current flat levels to 4.5% next year with house loans growing by 4.7% and business loans rising 4.3%. The bank has a 36% share of commercial lending and 40% share of rural lending. The ANZ Group also aims to lift New Zealand's contribution to group profit back towards 20% after ANZ agreed to pay NZ$413.7 million in December to the Inland Revenue Department to settle a dispute over structured finance transactions.
Meanwhile, Turley said businesses were continuing to deleverage either because they think they have too much debt or because they don’t have the confidence to reinvest so are using their cashflow to pay down debt. But he said a growing number are now looking for opportunities to either acquire competitors or expand into new markets. However, they’re cautious because they don’t want to embark on an expansion push and then find the bottom has fallen out of the economy again.
“Over the next 12 months I think they’ll grow in confidence to be able to actually make the leap in faith,” Turley said. The Barometer showed 87% of the 804 business owners surveyed were planning growth in the next year, up from 57% last year. The Barometer surveyed business owners in February and March. Most owners, Turley said, were looking to their cashflow or equity from existing shareholders to fund expansion.
However, they ought to think about widening and broadening the scope of debt and equity funding mechanisms by considering trade finance - whereby exporters require buyers to prepay for shipped goods - supply chain finance and asset finance.
“Going forward it [trade finance] is going to be a way of them bringing their cashflows forward and putting certainty around them and helping them actually fund that working capital more efficiently.”
The Barometer, meanwhile, showed earnings have softened. The percentage of companies reporting earnings before interest, tax, depreciation and amortization of between NZ$1 million and NZ$3 million fell to 33% this year from near 50% in the previous three years. Turley said this was due to pressure on margins to keep sales and customer relationships strong. There was also an impact from tough economic times changing consumer behaviour with a reduction in credit card use, lower spending on non-necessary items and a more conscientious approach to spending on essential items.
Compared to two or three years ago Turley said many firms' sales targets and their sales growth levels have been trimmed back, based on expected consumer demands.
“It has also made people start to think about, if they are exporting, what other markets are there,” Turley said.
“For example, people who are exporting to the European and UK markets, that have been affected by the consumer trends, are now saying 'we have a growing affluent market in Asia. How do we adjust and start to go and attack that market?'”
For these business owners China was flavour of the month given its sheer size, decent infrastructure and free trade agreement with New Zealand.
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