BNZ expects robust business credit growth to continue in 2016

The lender increased its business lending 7.7% to $34.8 billion in the 12 months ended Sept. 30.

Bank of New Zealand, the country's third-biggest bank by gross loans, expects business credit growth to remain robust in the coming year, with a number of sectors experiencing strong economic conditions, despite the woes facing dairy farmers.

The Auckland-based lender increased its business lending 7.7 percent to $34.8 billion in the 12 months ended Sept. 30, maintaining market share in both agribusiness lending at 22.2 percent and 26.4 percent of business lending. That credit growth is being driven by strong conditions for industries such as tourism, the service sector, manufacturing and financial services, BNZ chief executive Anthony Healy told BusinessDesk.

"Post-GFC (global financial crisis), the whole business credit went negative for a while, then it was pretty flat so you had a lot of deleveraging," Healy said. "Now you're seeing business invest again, be more confident about the outlook, and taking advantages in the growth opportunity in some sectors."

Reserve Bank figures show agricultural lending rose an annual 8.5 percent to $58.12 billion in August, while business lending was up 6.5 percent to $86.47 billion

Still, the Reserve Bank last month said business investment was estimated to have slowed in the middle of 2015 as falling export prices, fewer capacity pressures and declining business confidence eroded some of those intentions, and government figures show business investment rose at a slower pace in the year ended June 30 to $40.29 billion.

Governor Graeme Wheeler will review the official cash rate tomorrow, and while he has indicated another cut is likely, traders aren't expecting him to move. When giving a speech earlier this month, Wheeler said it was important to consider whether borrowing costs were constraining investment, though BNZ's Healy said low interest rates weren't driving investment.

"The economy can adjust quite well and is in structurally good shape," Healy said. "It's not so much low interest rates encouraging business to invest and borrow, it's that the outlook for the economy looks good."

Healy said BNZ was taking a conservative approach to the dairy sector, adopting a new accounting rule to take a cyclical view, which led to an increase in collective provisioning for bad loans to $375 million from $278 million a year earlier, with a lower dairy payout expected to put pressure on farmers' cash flows.

Still, chief financial officer Adrienne Duarte said that could reverse if the turnaround in dairy prices was sustained, though it would be unlikely to be released in the next half-year.

The bank today reported a 7.9 percent increase in annual cash earnings to $966 million on a 14 percent rise in operating income to $2.43 billion. Net profit climbed 22 percent to $1.04 billion, with wider margins on the expanded loan book offsetting the increase in impairment charges on bad debt.