Information only disclaimer. The information and commentary in this email are provided for general information purposes only. We recommend the recipients seek financial advice about their circumstances from their adviser before making any financial or investment decision or taking any action.

Kiwibank has been nothing short of a success.

It was initially set up in 2002 as a brainchild of the Alliance MP Jim Anderton, who was in a coalition government with Labour at the time, with a purpose of establishing a locally owned bank with profits that stayed in New Zealand, rather than headed overseas.

A quick tour of its history shows that from day dot, it launched over 200 branches nationwide, partnering with (and ultimately owned by) NZ Post. By 2008 it had grown to 600,000 customers, campaigning on “joining the movement” (i.e., away from Australian owned banks) and winning new customers on stronger customer satisfaction.

It continued to grow and in 2016, NZ Post sold 47% of it to NZ Super and ACC.   Fast forward to 2022, and the entire business was purchased from the syndicate by the New Zealand Government for an estimated $2.1bn.

As of June 2023, Kiwibank has total assets (loans) of $29.7bn, giving them a 5.62% share (on a "dollars lent” basis) of all New Zealand main bank lending. It also continues to head in the right direction, up from 4.39% five years ago. That’s impressive growth.    

Profitability is OK, but not as good as the Australian banks. Return on equity of 6-7% lags the main other banks who typically average about 12-15% (Return on equity (ROE) is the ratio of profit after tax to average equity).

Interestingly, their net interest margin is slightly higher than most banks at 2.5%, meaning they’re highly effective at using deposits to earn income (the net interest margin (NIM) is the ratio of net interest income to average interest-bearing assets, where net interest income is income received less income paid).

Why their profitability of their business lags versus others (on a ROE basis) is probably due to the operating expenditure being much higher at 65% of total income, versus their peers at 40-50%.   This may be symptomatic of a growing business and a larger number of smaller accounts.

Home loans are the biggest part of Kiwibank, but Business banking is rocketing up.

 

Below is the makeup of Kiwibank’s assets (loans) – from five years ago until today.

Information only disclaimer. The information and commentary in this email are provided for general information purposes only. We recommend the recipients seek financial advice about their circumstances from their adviser before making any financial or investment decision or taking any action.

Foreign direct investment (“FDI”) into New Zealand agriculture has been a political hot potato since it became a significant election issue in 2017, leading to material changes in OIO regulations, materially restricting FDI into New Zealand farmland on the back of it.   The regulations enacted at the time had the effect of restricting any investment into New Zealand land that was >5ha in size, with exceptions carved out for minority stakes in entities that hold land (<25%) and also those that deliver significant economic benefit to New Zealand (something that has been subsequently difficult to obtain as an exception).

However, the majority of economic data suggests that foreign direct investment (FDI) is advantageous to those countries that receive it. FDI promotes efficiency by enabling the allocation of resources to their most valuable purpose and introducing innovative technology and managerial methods that stimulate competition for resources, increase business revenues and enhance productivity growth.

In short, it creates more economic prosperity.

With the imminent change of government, plus the growing need to ensure New Zealand remains a high value economy in the future and funds all its necessary infrastructure upgrades, the discussion on FDI is about to amplify.

Let’s start this discussion with a graph. Below is all foreign direct investment since 1990 into New Zealand as a percentage of GDP compared to our nearest neighbour, Australia.  

Information only disclaimer. The information and commentary in this email are provided for general information purposes only. We recommend the recipients seek financial advice about their circumstances from their adviser before making any financial or investment decision or taking any action.

In our article last week on the 'The Agri Banking Sector Through the Eyes of a Young Professional' I mentioned about some of the pearls of wisdom I had gathered from the ‘old Gen X’s’ that have a lot more wisdom than myself!

If you recall, writing this article started when I was asked to prepare an introductory document for our next Graduate to help bring them up to speed as they themselves enter the sector. Upon putting together the document I went to the people of NZAB and asked for their best ‘tip of the trade’ or ‘key piece of advice’ they wished they had when they first started out, and I received some absolute rippers that were too good not to share.

I believe there will be something that will resonate with every reader no matter the stage in your career. I have put them into sections based on some of the key messages that came through below: 

 

1. Draw on the knowledge of those around you to help assist your growth. 

•  “Utilise the experience around you – ensure you spend time around those you can learn from, ask to go out on joint visits and the like. See how different people work and process things, and then see what resonates with you and how you can apply that to your own methods and approaches going forward".
• “Don’t think you need too or will learn everything straight away. Ask lots of questions, listen to conversations and try to soak it all in. It will come over time with experience, use the wealth of experience already within your business to help you along the way".
• “Enjoy the journey. You’ll never get another time in your career to observe and learn from so many different people before having to be accountable for your own clients. Many Grads are tempted to rush to a ‘better job title’ but I often think back fondly on my time as a Grad".
• “Everyone you work with in your time as a Grad brings their own skills and experiences that others don’t necessarily possess. They’ll also do things in a different way from their peers that will still achieve the outcome they require. Look at all people as a resource to tap into rather than at their job title. You never know when you will need someone’s specialist skills or knowledge at a future time in your career and their preparedness to help you will depend on how you treated them from all the various interactions, they had with you". 
  
  

2. Listen and ask lots of questions.

• “Practice listening and get really good at it".
• “Never be scared of asking questions if you don’t know the answer, even if it’s multiple questions. Sometimes we’re scared of that, thinking it makes us feel like we don’t know enough and that somehow will make us inferior - but that’s not the case in real life. Asking questions (or simply confirming what you think you’ve heard) shows a curious mind and a focus on getting more accurate information with a better understanding - excellent qualities".
• “You have a free 12 months to ask as many questions as possible about anything and everything. Make sure you use the 12 months wisely and learn as much as you can".
• “Enjoy. It’s a special time in your career that you will look back on fondly in time to come. Don’t be in a rush. You will get there fast enough and the more you learn now through asking questions, exposure to conversations and meetings where you don’t have to play an active role in will be some of the best learnings you’ll ever get".
• “Starting off as a Graduate is one of the most privileged positions to be in from the perspective that all you must do is show interest, ask questions, take notes and observe. Other than your colleagues giving you things to do for your development, you are literally there to learn the ropes without external delivery expectations. You have earned the Grad role through your ability to talk (communicate and articulate), your personality and the investment you made into yourself at University. You may have learnt some theory that is relevant to your job, but this next step is about bringing theory and commercial reality together. It’s important to have an opinion, and sometimes demonstrate your understanding of what’s been discussed, but your best position to come from is a place of curiosity rather than knowledge".

3. Always show respect and never be quick to act or judge. 

• “Our business and banking is about people. You can never know what people are juggling or managing that you can’t see. Approach every interaction, whether it’s with clients or the bank with empathy. Always “seek first to understand” before responding".
• “Respect the Customers/Farmers you deal with. We are in a privileged position where these farmers open the door to us and show us their businesses at an operational and financial level. Each and every farmer has earned the right to be where they are today".
• “I remember getting told when I was first a Relationship Manager to never make assumptions about a deal before you have had the meeting. Super hard to do, but so true".
• “Never burn bridges - even when dealing with people you don’t see eye to eye with, treat them with respect as you never know who they are either related too or have some level of influence over".
• “The advisory industry is a lot of fun and a great opportunity to develop lifelong contacts and friendships along the way. We are in a super privileged position to see the good, the bad and the ugly. Remember that we are there to help, not cast judgement. So always be respectful of the fact that despite the challenging situations that some people face, this wasn’t how they saw it panning out and they once warranted all the debt that a bank has provided that now sees them in the position, they are in".
  
  

4. Get involved and just give it a go!

• “Don’t be afraid of giving things a go, the more exposure you have the quicker the learning curve. We all start at the same place but if you apply yourself and put yourself in situations to learn and grow you will accelerate your development. Try to avoid sitting on the sidelines because you don’t feel qualified".
• “Turn up to work with a good "can do attitude" and a smile. Login to your emails, keep them open all day, and regularly check them".
• “Have a crack at working things out yourself (look at old papers that have been completed) but also don't be afraid to ask for help".
• “Make an effort to introduce yourself to the whole team - in all regions, there's a wealth of experience, and everyone is itching to share their knowledge. Relationships with the team help build confidence to build relationships with clients and other intermediaries".
• “Attitude and intent are the absolute key. As a Grad, you’re not hired because you are expected to know how to do the job, you are hired for your perceived ability to learn and execute. Say "yes" to everything regardless of who’s job it is (above or below you) and put your shoulder in to every chance you have”.
• “Try first, ask second’. This is the best way to learn. Have a crack at a model, or a review and then ask questions once you’ve done what you can".
• "Travel and see the country! The best thing you can do as a Grad is move as far away from home and your comfort zone as possible. You meet a ton of new people, build key relationships that may come in useful later in your career, but most importantly if you mess anything up, it’s not in your hometown!!".
• “I remember coming into the Bank as a Grad, thinking there was expectation on me to know what I was talking about. I don’t recall ever being given the perspective of the fact that nothing was really expected from you, other than to be grateful for the opportunity, be respectful and be eager to learn".
• “Don’t sit back and wait. The best people in the business are usually too busy to be totally effective mentors (that’s possibly unfair to some, but generally I have found it to be true) so if you want to learn, you’ve got to force your way in by demonstrating some usefulness or value to those high performers. Look for ways to do this, it might be prepping a meeting, or some extra insights etc".
  
  

5. Sometimes the basics can be the most important. 

• “You can be taught banking and technical skills, but the soft skills are more important. Being able to structure meetings and talk to people is most important".
• “Admit when you don’t know something. It can be a bit intimidating to tell a farmer that you don’t know the answer to their question, but they respect honesty, and can smell bullshit from miles away. If you don’t know, then say so, but offer up a plan to get back to them".
• "Remember you are now part of your business’s brand. People will affiliate you with that business at any interaction. We’ve all had slip ups, but make sure you are carrying yourself at a level that you would be proud to be talked about".
• “Get it right - clients pay us a lot of money to get the job done and to do it professionally. It is always a good idea to get someone else to proof your work before sending out to clients/banks etc".
  
  

6. Bonus advice.

• “No good happens after 11pm. Go home. If you do push the boat out a bit far, always front the next day on time".
  
  

On that note I’m going to call it a day. No matter the stage of your career there is always something you can do better.

We are involved in a very exciting industry that is constantly evolving which means there is always something to learn. I hope there was something in this article that helped you do just that today!

Thank you to those who responded following my first article, it was great to hear from you and I enjoyed those who challenged my thinking – again please feel free to drop me a line if you have any follow up comments!

Information only disclaimer. The information and commentary in this email are provided for general information purposes only. We recommend the recipients seek financial advice about their circumstances from their adviser before making any financial or investment decision or taking any action.

I have been involved in the financial sector for 18 months now, joining NZAB as their first graduate fresh out of completing my B.Com Ag at Lincoln University.

With our next graduate imminent, the NZAB team asked me to prepare an introductory document to help bring the new grad up to speed as they themselves enter the sector. As part of writing this, I asked the entire NZAB team for for their pearls of wisdom about starting out in Agri Finance (I’ll send these out in a follow-up article). They then encouraged me to write an article on both – we have many young people in our database so they thought it might be useful for those progressing in the industry.

This is my first time writing an article, so please be gentle with your feedback, but would love to hear from you!

It can be a bit overwhelming when first entering the industry, you feel like you don't know anything and that it will take years to learn it all and this is true! However, no one is expecting you to know everything and almost everyone is very willing to share their knowledge and help you along the way.

Approach is everything and with a can-do attitude and a willingness to learn this will take you a long way towards being successful. After 18 months in the industry, I have started to form some key observations, five of which I have outlined below.

So, here are my five key observations since entering the finance industry:

 

The industry appetite is constantly evolving.

The finance industry is constantly evolving in terms of best practice and appetite. This can be difficult as you must be prepared to make decisions based on the information you currently have on hand but ready for the realisation that everything will have likely changed in 12 months’ time.

This is one of the things I have probably seen as one of the largest challenges as there is a constantly moving ‘target’ that everyone is trying to hit. This changing appetite is usually a direct result of the strength of each industry at the time but overall, it is largely controlled by the bank’s lending appetite at the time which can be based on other factors outside a farmers control.

This changing appetite can become a large challenge for farmers who tend to work around a long-term strategic mindset. Farmers in general enter the industry with a long-term plan set around a 20 plus year strategy, which can be challenging to align with a changing industry appetite.

Bank appetite has a huge effect on a farmer’s availability and cost of funds. This can potentially make it more difficult for a farmer to act on an opportunity or slow down farm development if bank appetite is not aligned at the time these changes are taking place.

However, this evolving appetite within the industry is also what creates so many opportunities. Like any industry there are opportunities at the highs due to good returns and opportunities at the lows due to good deals that might be present. The challenge is to stay informed and to only act when it is smart to do so.

 

Industry contacts are hugely helpful.

One thing I have found out since entering the financial sector is, it is so much bigger than just your everyday bankers, advisors, and accountants.

There are many smaller niche spaces within the sector. There is also the requirement to deal with and have some understanding of many topics that branch outside of the direct financial sector. In an industry like this, having contacts can be extremely helpful and the best way to educate yourself. Being able to refer to these contacts is a great way to ensure you get accurate information, whilst it also provides the possibility of opening up new opportunities.

Start by getting to know and building good relationships within your own firm. These individuals have likely been where you are and have a wealth of experience so are definitely key people you want to have at your aid.

I would then recommend getting out and about attending industry events wherever possible. This will allow you to meet and start building new relationships within the industry to expand your portfolio of contacts. Stay in contact and this will help to increase your knowledge at a much faster rate moving forward.

 

There is never a bad time for a good deal.

During my short time in the industry, I have seen that when a sector is having a tough season that it can automatically be perceived as a bad time for anyone to be undertaking a significant growth project. However, this is so far from the truth. Some of these "bad" seasons present the best opportunities for those that are in the right position to act.

Each expansion or farm purchase should always be analysed on a case-by-case basis in order to understand the full story before making a decision on whether it is a good deal and if it’s the right time to act. There are many different elements to a deal that can affect its strength and whether it should be acted upon. For example, the neighbouring block of land may come up for sale. The farmer may not be in an ideal financial position to make a move, however the chance of that block coming up for sale again and the opportunity factor of missing out comes into play.

Sometimes you need to just slow down and attempt to step back and look at it from a wider perspective. What does the future of the farm look like without having this block involved and look at the long-term effects? It will likely strengthen the farm system through scale, security (winter stock in house) and ease of stock movement being located next door.

Unfortunately, there will very rarely be a time when all the moons align for example a deal that takes place in a market with a strong bank appetite, at the right price and when a farmer is in a position to act. This is why the right steps need to be taken to analyse each deal from all angles. There are always opportunities in the industry and deals to be made, it's just about sorting through them to select those worth acting upon.

 

Barriers to farm ownership are becoming increasingly difficult.

This was often talked about during my time at Lincoln University and I was quietly hoping that I was going to be proven wrong upon entering the financial industry.

However, it has become evident that this statement is very true. While a lot of the bigger players in the industry that have already managed to build a level of scale to their business are in the most part operating very successfully with an opportunity to expand within reach. The path for new players to enter the industry and purchase their first farm is one that is becoming increasingly difficult.

I believe this is a result of multiple factors. Farmers in past generations purchased their first farm and then had the opportunity to buy the neighbouring farm and so on, building scale slowly over time through smaller parcels of land. This has resulted in the size of farms becoming generally larger, but this has also become a requirement for having a profitable business.

Farms have become much more intensive and having scale is almost necessary to allow the business to be viable. Therefore, for new players attempting to enter the industry they are now challenged with purchasing a farm that is larger and more developed than their predecessors.

Chuck in the element of increasing regulations and environmental policies and this first farm now comes with a much larger price tag and can prove to be very difficult to make work.

However, it is not all doom and gloom and at NZAB we help many young farmers into their first farms. I am starting to see many different arrangements for farm purchases filter through the system which I find very exciting as well as necessary for the success of the industry moving forward.

For the industry to carry on, there needs to be younger people coming up through the ranks and having a pathway for this to occur is critical. One of the best methods I have seen is the exiting farm owner leaving equity in the farm with an arrangement for the farm buyer to buy them out over the next 5-10 years. This provides an investment the exiting farmer can get a return on, in an industry they are knowledgeable about and a farm they are familiar with, whilst also providing an achievable pathway for the next generation to come through the ranks.

We’re facilitating more and more transactions like this, and it is a great way to break down these barriers to enter for younger/newcomers to the industry.

 

Being flexible and bank ready is very powerful.

A business that is flexible and bank ready sits in a very strong place in the market. Business flexibility starts with being active in controlling and monitoring the financials of the business. Farmers who are all over their cashflow are better able to adjust it to suit the current market conditions. This puts them in a flexible position where they can tighten down expenses during tough times. For example cutting back on non core spending and capital expenditure. While also knowing what triggers to pull to boost production/increase returns during periods of good conditions.

For a business, being flexible is a huge strength. When opportunities present themselves this will allow the business to act fast giving it the highest chance of being successful.

Being bank ready refers to a position in which the business has a suitable equity position and a strong cashflow with good business systems and governance. It means the business is in a re-financeable position and would likely be accepted at any bank of its choice.

Having a strong understanding of your business cashflow and financials goes a long way to getting into this position. It has a variety of positive flow on effects. It creates competition in the market to bank the business, which in turn leads to competitive rates and terms offered. It puts the business in a position of power to negotiate terms that suit its needs as well as competitive rates that will decrease the business’s cost of funds. It also puts the business in a position to have a strong availability of funds if it wished to act on an opportunity or carry out some development.

 

Thanks for reading my first article!

Overall, it is a very exciting industry to be a part of. Just get out there, get stuck in and embrace the journey. At the end of the day, we are all out there to achieve the same outcome, and that is to get the best result for our clients and customers!

I’m still very much learning about the sector, and I probably will never stop. In the meantime, I hope one or two points resonate with you – please feel free to drop me a line if you have any follow up comments.

And look out for part II – where I share some of the time-honored wisdom from the “old Gen X's”!

Information only disclaimer. The information and commentary in this email are provided for general information purposes only. We recommend the recipients seek financial advice about their circumstances from their adviser before making any financial or investment decision or taking any action.

We’ve dived back into the RBNZ data to see all the main bank movements over the last six months - all the changes in lending, who’s winning market share and who’s losing it in both the Agri and Business Lending Sectors.

In this Issue:

• The big slowdown in credit growth continues with half the lending growth over the last 12 months than we saw in 2021 and 2022.
• A turnaround for Agri lending with over a $1Bn in new lending to the sector over the last six months on the back of stronger bank appetite, but also the build up of overdrafts with falling payout and increasing costs.
• ASB and Rabo continue to grow their market share strongly, with ANZ's endless march downwards continues, shedding a whopping 80bps of lost market share over the last 12 months.
• And on performing loans still quite low, a sign of relatively good credit in the sector. However, we would expect these to grow significantly over the next 12 months. There's now also one bank whose non-performing loans in Agri are actually lower than their total book as a whole, this could be a sign of too weak credit appetite or are they simply are well prepared?

As always, please sing out if you have any questions or would like to use the data in your own presentations or engagement with customers.