Despite more competition for business lending among the banks, momentum is still stubbornly slow
New Zealand businesses are pulling back on their optimism as the promised economic recovery keeps getting pushed out, with NZIER’s most recent quarterly survey showing confidence has taken a notable hit despite falling interest rates and plenty of competition among lenders.
NZIER’s Quarterly Survey of Business Opinion showed a net 15% of firms expect an improvement in general economic conditions over the coming months on a seasonally adjusted basis, down from 26 percent in the June quarter. This drop comes just when mortgage holders are getting relief from lower interest rates, yet businesses aren't ready to commit to new investments or hiring.
Kiwibank chief customer officer Elliot Smith says competition for business lending is heating up among banks, but consumers are still hanging on the sidelines, not quite ready to commit to more significant investments yet.
On Kiwibank’s Markets, Mystics and Mayhem, he noted that last year, 70% of New Zealand’s business lending came through Kiwibank. That’s now reduced to 41%, due to increased appetite for business lending among other banks.
“But we’re certainly pulling our weight, which is really important for a bank that only has one market – New Zealand,” Smith said.
“There is more competition which is a good thing for this country, and there’s more access to capital. That means that even though the deal-flows haven’t really picked up back to levels from a few years ago, customers that are out there doing stuff are getting a great deal, and that’s great for the New Zealand economy.”
However, there's still a stubborn gap between what businesses hope will happen and what's actually happening. For the past year, actual activity has fallen short of earlier expectations of a recovery, with a net 14% of firms reporting a decline in activity in their own business in the September quarter.
The momentum simply hasn’t arrived yet, even though lending conditions have improved. Still, Smith said there is reason for optimism – particularly as lower mortgage rates start to come through.
“I’d like to think that the conditions in aggregate are much more conducive [to growth],” he said.
“Something like 40% of all fixed-rate mortgages are still to roll over the next 6-9 months, but that period shortens because everyone is on shorter terms. So the cuts are going to flow through quicker than maybe they would have in prior years.
“If I’m a business owner thinking about whether people are going to have more money in their pocket, and whether they’ll be opening their wallets over summer and into the new year - certainly I’m very optimistic that those conditions are getting better in aggregate.”
Smith said that the “wealth effect” is also part of the reason that momentum hasn’t quite picked up yet. The housing market has remained stubbornly flat this year. Kiwis don’t feel like they’ve seen their wealth increase, and so they’re less inclined to spend their cash or make significant investments.
“Something hasn’t quite gelled in the country this year about the confidence to make some bigger choices,” Smith said.
"It's a bit like momentum generally – it's a precious thing, and when you don't have it, it's harder to get the ball rolling. I think we just really need the momentum from some of these decisions to speed up.”
