Our Insights

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



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



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



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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Start controlling your banking in 2021 with these keys to success.

Jan 21, 2021 9:01:48 PM / by Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy


Welcome to 2021 everyone!

2020 was an interesting year for farmers. When Covid initially hit there was significant uncertainty as to the impact on soft commodities, it would be fair to say that things did not play out anywhere near where most market commentators thought or feared, myself included.

Early estimates of a significant retrenchment in Dairy prices were well wide of the mark and even though venison, lamb and beef went backwards, they still didn’t plunge the depths that some might have feared.

Being prepared for all eventualities is a smart thing as a year seems to be a long time in farming and economic cycles these days.

For those of you that managed to get away, we hope you’re well rested and fired up for the year ahead. For those of you yet (but about to) to take a break, we’re now jealous!

As we step into 2021, we thought we’d put out some of the keys to success when dealing with your bank. All designed to ensure you remain in control of your banking process and get the best possible interest rate.   This is not an exhaustive list but will get you started in 2021.

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Now is the Time to Revise – A Case Study in the Power of Re- Forecasting Your Budget.

Jan 19, 2021 1:00:51 PM / by Chris Laming posted in Debt, Action, Planning, Budget, Banking, Strategy


Now is the time to revise your cashflow forecast for the remainder of the season.

If you are a follower of our insights, you’ll know how important it is at the start of the season to meet with the bank and present your budget together with the key strategic initiatives, for the year ahead.

Being nimble and responding to change in the assumptions that made the original budget, is equally important.

Being better informed about where your business is right now, and what that means for the rest of the season leads to better on-farm decisions.   This leads to better and earlier decisions around both “defensive actions” or “investment thinking”

Keeping in mind your original budget is locked and loaded, necessary changes for the remainder of the Financial year can be made in a “Revised Cashflow Forecast”.

When is a good time to review? - All the time!

We’re always reviewing clients forecast based on changes to performance or external factors and checking the impacts of those changes on the cash position of the business, and ability to meet obligations. However, now is probably one of the most important times to look at it.

Your original budget is likely to be based on Fonterra’s opening forecast of $6.15, with a production curve similar to last year, interest rates possibly higher than they are now.

Payout is now $6.80, Canterbury’s production has had an excellent start to the season, but a difficult October, interest rates continue to fall, and the budgeted export heifers may not go. There’s a lot to think about.

A Case Study: Pro-active forecasting leads to higher farmer confidence and better bank discussions.

Below is a recent example of a Customer’s revised cashflow completed after a thorough diagnostic on the remainder of the season:

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“ESG” – a growing opportunity to protect and improve your bank margin

Jan 19, 2021 12:51:48 PM / by Tom Laming posted in Debt, Action, Planning, Budget, Banking, Strategy


My daughter turns six later in the month, so to celebrate we had a big gathering of friends and family over the weekend. Thankfully no injuries on the bouncy castle (this time!).

Naturally the conversation turned to the recent election, but also the potential impact on farming from the National Environmental Standards released earlier in the year, especially given the election result and a continued swing to the Left.

I won’t begin to go into the detail of the standards, nor the potential options to manage and mitigate the potential impacts (nor our respective political views!).

What I would like to do is talk more broadly about what we at NZAB are seeing as the key themes in this space, and the potential impact on farming businesses and their ability to access capital going forward.


What is ESG? (Environmental, Social, Governance)

You will have no doubt seen or heard this acronym in the last while. Environmental, Social and Corporate Governance refers to the three central factors in measuring the sustainability and societal impact of an investment in a company or business. For investors, bankers, regulators and governors of businesses across all sectors, it is an increasingly important aspect in how they assess the future performance of companies (return and risk).

We’re seeing the impact of this already in loan pricing

In September 2019, Synlait Milk accessed a $50m loan from ANZ Bank that has its pricing linked to the ESG policies and performance of the company. This is a clear demonstration of how Bank’s are looking to incentivise good performance in this space, on the basis that it knows that key risks are being managed, but also that the business may reap economic benefits.

Similarly, the Auckland City Council has gone to the market recently, raising $500m via the issue of a “Green Bond” – essentially accessing funding on a long-term basis that is allocated to council projects with an environmental or sustainability focus.

The world is awash with so called “green money”. This pool of relatively cheap and long-term funding looks set to continue to grow.

Consumers are already valuing products that have great ESG fundamentals

You don’t have to go too far in the media at the moment to find examples of companies looking to leverage what they are doing environmentally to help appeal to consumers.

Recent examples include Fonterra’s Carbon Zero Milk; Anchor with plant based milk bottles; Southern Pastures purchasing Lewis Road Creamery outright as it looks to leverage its 10 Star Values Program; Bostock Chicken and its Bio-degradable Meat Packaging - the examples are endless and show the value consumers are starting to place on good practice in this space.

These are positive innovations and reflect a focus from NZ producers on meeting consumer needs, whilst hopefully driving higher returns within the farm gate. We are well placed as a sector to take advantage of these changes in consumer preference, the rewards represent the carrot rather than the stick.

So what about ESG in the Banking Sector?

As illustrated via the Synlait example, Bank’s are starting to put a much greater focus on both their clients, and their own, environmental and social policies.

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Thank You!

Dec 24, 2020 2:23:54 PM / by Scott Wishart posted in Debt, Action, Planning, Budget, Banking, Strategy


As another year draws to a close, I just wanted to take this opportunity to thank all our clients and industry professionals who have supported us this year. You keep us motivated, engaged, and at the top of our game.

As I reflect on the successes, I am incredibly proud that we have been able to continue to grow our business and support more of the industry. We added seven staff this year, with two more starting in January, opened a new region and began investing in technology and systems to provide an even better banking outcome.

We are really excited about what is ahead.

The Agri sector has grown and thrived off the back of long term, stable thinking and in a year that has felt like an incredible amount of short-term decisions have been made it’s important to stop, reflect and remember the journey that you’re on and celebrate the steps you have taken towards achieving that overall vision. You might find you have gone further than you realised!

As Cam Black has written for us in his first article below - as an industry, we can be hard on ourselves and it's so important we stop once in a while to smell the roses.

Have a safe and enjoyable Christmas and New Year, and we look forward to working with you all again in the 2021

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NZ Debt Growth Distribution Shocker - C’mon NZ Banks and RBNZ!

Dec 15, 2020 4:35:11 PM / by Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy


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Hate the Game, Not the Player. Spare a Thought for the Frontline Banker.

Dec 9, 2020 11:47:49 AM / by Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy


Andrew Laming, Director, NZAB

Imagine this scenario for a moment.  

You’re a dairy farm owner

Your dairy farm manager is doing your monthly feed wedge and he notices that there is a gap in supply and demand due to a poor start to the pasture growth in the month.  

But it is an easy and logical fix - he tells you that he needs to put a bit more feed in plus change the ratio of the feed mix. You do the numbers with him and it all makes perfect sense and delivers a tidy little profit.

So you, as the farm owner, go and speak to your feed supplier about getting some extra feed and possibly a slightly different mix.   

Your feed supplier knows a lot about dairy farming and a lot about feed.   

He knows that putting that feed in will make more profit.  

However, your feed supplier is not sure whether he should sell you that feed as he might be able to sell that feed for a better profit somewhere else.  

He is also a bit wary of selling feed to you, because you are a dairy farmer and he sells to a lot of dairy farmers already.    

You have always paid their bills, there is no issue there. Your farm is also having a fantastic year.   But your feed supplier is not interested in this.  

Eventually after plenty of time has passed and many discussions back and forth, you finally manage to agree with the supplier to get some feed - but only getting about half of what you need and it's also not really in the right mix ratio to get the most optimum performance.    

But you accept it - as what else can you do and its better than nothing.

The dairy farm owner goes back to the manager and tells him the news.  Rightly so, the farm manager cannot make any sense of this.

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Will the banks pass on the RBNZ’s cheap funding into the Agri market or are they going to keep fueling the housing market at the expense of the NZ productive sector?

Oct 30, 2020 1:41:41 PM / by Andrew Laming posted in Debt, Action, Planning, Budget, Banking, Strategy


Andrew Laming, Director, NZAB

By now you will have probably heard about the RBNZ’s “funding for lending programme” (“FLP”).   Put simply, this is a mechanism the RBNZ is going to use to allow the banks to borrow new (freshly minted) money directly off the RBNZ at whatever the OCR is at the time.    At time of writing this is currently being forecast to drop to as low as -0.5%.


The reason RBNZ wants to do this is to stimulate growth in the economy with lower rates.  


At present our Reserve Bank Governor cannot guarantee that low OCR levels will be effectively "passed on" with current RBNZ tools.

These days the OCR rate is not linked to the cost of bank funding as it depends on where the market for customer deposits is at.  Which have of late been much higher than the OCR– driven by the laws of supply and demand and the regulations that require banks to seek most of their funding from NZ customer deposits or longer dated offshore lending.  

So a currently low OCR does not equal a banks own funding costs.   Which means it does not equal low cost lending (well, not “low enough”). The FLP is designed to get cheaper funding directly into the market, which by default should lower all forms of funding for the banks.


So in short, Mr Orr wants cheap money out in the NZ economy to get things humming again.   Sounds great right?

Well, that depends on where it goes.

So far, the RBNZ has been deliberately non-descriptive about where banks have to place that $50bn .   FLP programmes around the world are not uncommon and learning has shown that the less rules placed on the banks for the “direction of funds”, the more likely that bank’s will use it ( a recent example of this going wrong was the govt guarantee scheme for bank funding -too many initial rules meant very little was leant out initially ).

The FLP may include incentives to encourage banks to use the funds to expand new lending. In other countries, banks have been given a more favourable interest rate or higher funding caps if new lending growth expands. However, the risk of the RBNZ being too prescriptive is that Banks see too much red-tape or complexity making access to the new funding too onerous.


In order to predict where funds might flow, let’s step back and consider all the current elements of our banking system in NZ.

  1. We have central bank rules that mean home lending is much more profitable for banks than Agri or commercial loans (Banks have to put far less capital against a home loan = much better return on this investment)
  2. We have banks that are looking to lower overall costs, in particular the cost of their processing.   More, simple deals, more deals that fit into a box, less analysis of complex P&L statements all mean lower cost AI type lending decisioning.
  3. We have banks that are commercially owned. Naturally they want to maximise profit and return to shareholders.


So put these elements together with $50bn of newly minted low cost funding thrown into the mix?   I think we can already see that the vast majority of the new funding will be going directly to new house loans.

We’re already seeing this happening in the market, before this scheme has even started.   We can see it in the streets and in the news.   Lines of people at open homes, frequent outlandish examples of auction prices going for above CV and a real air of FOMO with buying houses again.

It's self-perpetuating- more lending to a sector in itself makes the initial lending less risky for the bank.   Chuck more capital liquidity at a market and asset prices will rise.     NZ housing has benefitted significantly from this over a very long time - no different to what Farmland values did when we had double digit increases in farm debt over 2000-2014 (with a break in between for the GFC).

Don’t get me wrong, higher house prices will stimulate the economy.   Higher house prices will make everyone feel better again, spend money, keep jobs. It’ll encourage the construction sector plus all those allied to it. Also, many businesses borrow against their homes as a cheap source of funding.  


But can’t we do a little better than this?

Come back to Agri.   This is a sector that is currently experiencing near record profits. Farm cash yields are now averaging 6-8%, way above their long-term trends and way above alternative investments.     Its exporting real stuff.   Stuff that other countries buy and give us money for.   Export receipts. Absolute gold in a world with significant domestic consumption risks and where our key tourism sector looks like it will be in the doldrums for some time to come.

But guess what – Asset prices in Agri have fallen.   And guess why?   In large part due to reticence from Banks to provide more capital to the sector, due to banking regulations that have been inadvertently set up to discourage lending to the sector because of a perception of higher long term risk.  

And just like the housing market, this becomes self-fulfilling, but in a negative way. Less capital to the sector = lower asset prices.


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