Action needed on business lending contraction
The Reserve Bank has expressed concern over continued business lending contraction in its Financial Stability Report released today. The New Zealand Manufacturers and Exporters Association (NZMEA) say that steps such as changing capital adequacy rules on lending to businesses, recapitalising Kiwibank and addressing the tax balance must be taken to counter this.
A NZMEA survey conducted in June last year found that:
• 63% of respondents reported that their bank had increased the margins they paid on credit facilities;
• 57% of respondents reported that their bank had tightened covenants associated with their credit facilities;
• 55% of respondents reported that their bank had increased charges associated with their credit facilities; and
• 46% of respondents reported that their bank had used the opportunity of any change of credit facilities to increase cross guarantees.
NZMEA Chief Executive John Walley says, “The stories we are hearing from those involved in the tradeable sector suggest that these problems still remain. The banks remain particularly hesitant to lend to firms with currency exposure.”
“It is little wonder that property lending is favoured by the banks while it has a lower risk weighting under Reserve Bank Capital Adequacy Ratios and demand for property is fuelled by tax advantages. As long as property is advantaged why would banks and investors change this behaviour?”
“Talking about the problem doesn’t work and it never has,” says Mr Walley. “Behaviour will change when the rules change; we can but hope to see some movement on asset tax in the budget tomorrow, along with a serious policy package to promote growth in the traded economy.”
