Our Insights

Changes in Agri Bank Market Share are Telling.

May 7, 2021 9:11:04 AM / by Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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As you know we are very interested in the “why” when banks show differing levels of appetite in the Agri Sector.  

By understanding the “why” from a bank perspective allows farmers to better understand how they should navigate their credit and negotiation processes with their bank.

Knowing this allows our farmers to more effectively separate their strategy from what is good for their business and what is good for their bank which can, at times, be quite different things.

This short article looks at the impact of differing bank strategies since 2007 when lending took off quite aggressively in the Agri sector with the first “whole milk powder boom” and the very challenging volatility that followed.

These first graphs show how much capital each bank has leant to the Agri Sector (in total), since 2008.

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We're Thrilled to Announce Further Growth in our Canterbury Team

Apr 16, 2021 1:41:32 PM / by Scott Wishart posted in Debt, Action, Planning, Budget, Banking, Strategy

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It's not every day that you get to welcome one of New Zealand's most senior and respected Agribusiness Bankers to our team, which is why we’re absolutely delighted to have Cam Blain join NZAB as part of our Christchurch team.

I've known Cam personally for a long time and his genuine desire to help farmers grow their businesses has been clear to me and this makes him a perfect fit for our business.

Cam is our 18th team member. That's a milestone we are reflecting on proudly as a business. We started with a mission to help farmers take control of their finances in order to ensure they get what they deserve. The greatest litmus test of our success has been not just our growth, but that it has come almost exclusively from word of mouth and referrals from our customers.

The journey ahead looks exciting. It feels like we are just getting started. We're investing heavily in our offering to bring more value to our customers and insights to support their business objectives, so watch this space!

Thank you to all of our customers for your ongoing support. If any one in your wider network would like to talk to us about how we might help, please pass on our contact details or we would be happy to give them a call.    

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Where's the Balance?

Apr 13, 2021 11:26:32 AM / by Tom Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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I grew up as a child of the 80’s.
I had a horrendous bowl cut, idolised Richard Hadlee, thought Bruce Springsteen was the epitome of cool…..and had no desire at all to follow Dad into farming.
 
Things were tough – for most farming businesses life was about survival – just getting through a season and a year and hoping that fortunes would turn. And slowly they did.

The 90’s bought a period of relative stability and as the decade went on farmers saw opportunities to intensify, utilise abundant water resource, change land use and embark on a period of unprecedented wealth creation.

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A Wave of Cash is About to Transform the Agri Market

Mar 31, 2021 6:56:24 AM / by Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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We are in very interesting times right now.  

There are some big forces about to play out in the main trading banks operating in New Zealand. We believe this will culminate into a wave of capital that the Agri sector hasn't seen for the past 5-7 years.

That wave of capital coming to the Agri sector is going to have some interesting effects on asset values, funding costs and decision making.

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Is the Crowd Rush to Residential Property Investment Something That You’re Missing Out On While You’re Head Down on the Farm?

Mar 16, 2021 12:21:58 PM / by Chris Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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A debate amongst family...

In the Timaru office we have an ongoing debate about capital gain in various asset classes over the next 5 years. Because there are three headstrong and slightly argumentative Lamings' in this particular office, we each took opposing views.

As you’ll see, it’s led me to want to share some insights about residential property.

If you are a reader of our content, you’ll know capital gain often follows where there are lumpy flows of credit.

The credit flow has been well and truly pumped into the housing market, due to the banks preferring the simplicity and profitability of home lending. This, coupled with ultra-low wholesale borrowing rates, The RBNZ "Funding for Lending" programme (RBNZ lending to retail banks at the OCR) and Large Scale Asset Purchase Program (printing money and buying bonds), has contributed to historically low retail housing rates and investors chasing assets.

The Corelogic NZ House Price Index shows properties in New Zealand lifted 14.50% in the 12 months to January, 7.6% in the last 3 months and a mind boggling 100.1% since the peak of 2007 pre GFC. You can’t ignore these numbers. Whether it be the interest rate story above, or the lack of supply, or perceived immigration, the stats are the stats.

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Green Shoots in Agri Banking Appetite Can Bring Big Savings.

Mar 5, 2021 1:40:24 PM / by Tom Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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Are You Sure?

Feb 24, 2021 11:19:14 AM / by Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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There are always some terrific ads at half time in the Super Bowl.  

Arguably the most prime time spot in American TV advertising, the cost of securing a timeslot is enormous. This year, a 30-second commercial for Super Bowl 54 in 2020 cost about $5.6 million. I don’t think you’ll ever see NZAB with an ad at the Super Bowl but who knows, we should dream big!

So, if you’re a company that’s up for that you’ve got to have a catchy ad. Some of the ads are comic genius, featuring some big-name actors along to boot.

Take one of this year’s ads from “Rocket Mortgages” – it was a cracker. The theme of “certain is better” was really simple and it resonated with us a lot.  

It starts with a couple about to bid on their first home before wondering out loud: “I’m pretty sure we can afford this?”.

Cue the entrance to a big-name comedian who then goes through various humorous analogies of the limitations of the statement “how can you be sure?”.  

You can see the whole clip here

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Could Political Moves to Stamp Out a Runaway Housing Market Have Big Benefits to Agri?

Feb 12, 2021 2:07:39 PM / by Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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I love cause and effect. Squeeze a balloon and it will pop out somewhere else. Squeeze it enough and it will pop.

Banking is a bit like that at the moment, but for once in a long time, Agri may be set to benefit.

As you all know there’s heaps of noise about the housing market going up, lots of investor frenzy and yet again the purchase of the ubiquitous family home seems to be getting further out of reach for more families.

Its political dynamite – a hugely populist issue and one that the current Government seems determined to solve.  

 

Why do they need to make changes and step this up a gear?  “It’s the capital, stupid”

The Government has chucked a few traditional things at it (LVR restrictions) and ruled out a few others (capital gains tax), but they aren’t really working. They haven’t in other countries either. That’s because it doesn’t actually address the underlying issue - How ridiculously easy capital is available from banks in the home loan sector. As we say in the office - “It’s the capital, stupid”.

Big picture for a moment, there was massive stimulus last year with the RBNZ supporting the availability of capital to both Government and the Banks by continually expanding its Large-Scale Asset Purchasing (LSAP) to over $100bn (effectively printing money).  

A fair chunk of this money has found its way into the banking sector and the banking sector’s regulations and corporate profitability models are highly stimulative toward home lending. This is simply because:

  1. Its much easier to originate and serve a home loan (paint by numbers for credit departments and once set-in place, they don’t need much review) AND;
  2. RBNZ capital regulations mean a home loan is over 100% more profitable (at the same margin) than one to Agri or Business.

But is all that set to change?

There’s some big sound bites coming from this Government at present. Take these from Grant Robertson:

“We want to tilt the balance towards first home buyers while also incentivising more investment into the construction of homes”

“We all know that building more houses, particularly affordable housing is critical, but we can also do more to manage demand, particularly from those who are speculating”.

“It is the time for bold action. The market has moved quickly and rapidly in a way that is not sustainable – we have to confront some tough decisions and we will do that”

Now some of that will be referring to the upcoming changes in the RMA. But make no mistake, he’s about to make it way tougher to invest into housing (if you’re an investor purchasing existing homes).

Bank’s are feeling it too. They’ve become a lot more sensitive to the social impacts of lending. They don’t want to be seen to be encouraging the property market (via increased capital availability) to take it out of reach of family homeowners.  

So here are some new ways that we could see the Government influencing this, aside from more LVR restrictions:

  1. The Big Kahuna:

The RBNZ introduces (directed by Government) a second RBNZ amendment act – changing the mandate of the bank to include housing affordability alongside monetary policy and full sustainable employment.

To actually implement that, the RBNZ would then immediately increase the RWA (Risk Weighted Assets) requirements for banks’ lending to investor rental properties. In short, it requires the banks to hold more capital against these loans making them less profitable.

Cue much higher interest rates for these loans as banks find them less profitable.

  1. Make interest payments on housing investments non-tax deductible (excluding new builds).

I can hear the cries of “this makes no economic sense” straight away but the Government won’t care.   And they did it in the UK in 2017 to stifle property investment.    

This would immediately make housing less attractive.

Incidentally, it’s not as bad as it sounds (net impact might by about 1-2% reduction in cash yield), but this will put the frighteners up the investor market.   I would still expect new builds to be exempt from this.

And why is this good for Agri?

Well, the amount of capital in the banking system is not reducing.  

Think of that balloon again – you squeeze one area, its going to pop out somewhere else.   Make some parts of the lending sector less profitable for banks and they will examine the profitability of other parts of their portfolio more favorably.  

Agri is one of them.

Scale is important here - take the below graph showing the change in lending in both Agri and Housing over the last 12 months

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We're Looking Forward to Helping More Farmers Across NZ - Welcome to our Two New Client Directors

Feb 9, 2021 12:21:27 PM / by Scott Wishart posted in Debt, Action, Planning, Budget, Banking, Strategy

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We’re absolutely thrilled to welcome two new team members to NZAB, on the back of strong support from our growing customer base.

With the huge growth down in Southland being led by Michael McKenzie, we welcome Grant Dermody as Client Director to work alongside him, as an advisory lead.

Likewise in Palmerston North, Brendan’s team is expanding yet again and we’re delighted that Charlotte Grogan has agreed to join us, again in the position as Client Director.

We love working on behalf of our farmers to make them truly at the centre of their financing needs and give them the confidence and direction to grow and also the ability to sleep at night.

We’re up to 17 staff now, across NZ, and we’re not finished. We’re going to keep cherry picking the best people in banking and finance and unleash all their skills and experience into your camp, so farmers can truly get what they deserve from their banking relationship.

We very much appreciate all of our customers, both old and new.   We work hard for them and they reward us by telling their business peers - about NZAB and how we could be part of their own growth story.  

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The Power of Neutral Thinking - Critical When You Set Your Business Strategy

Feb 9, 2021 12:11:11 PM / by Tom Laming posted in Debt, Action, Planning, Budget, Banking, Strategy

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We know negative thinking isn't great, but 100% positive thinking doesn't always work either.   Welcome to neutral thinking.

I’m an avid podcast listener.

Early morning runs and a fair amount of time in the car provides plenty of downtime to be entertained, educated or just zoned out!

One theme I have found really interesting in a few different forums recently has been around the power of “neutral” thinking.

It’s not hard to find literature and information on the power of positive thinking.

Books like "The Secret" espouse the value of positivity, visualising an outcome and then having it almost magically turn to reality.

By contrast, we all probably appreciate the dangers of negative thinking.

One study I read suggested that a negative thought is 70 times more powerful than a positive one!

Neutral thinking by contrast is far more constructive.

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