Last Updated Jan 20, 2009 7:53 PM EST
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- Today's Transcript
Rob Goudswaard: My answer to that would be not necessarily. I think at the present time you would do well to be quite resilient around your planning and quite disciplined about looking at possible scenarios. And then receiving far greater advice that would normally be the case from your accountant, your business banking managers and such. So that you can actually plan for contingencies that may actually take your business off the tracks.
Dobbie: Right, so assume the worst is really what you're saying.
Goudswaard: That's right.
Dobbie: Is it harder right now for a business to borrow?
Goudswaard: Typically, we find that our customers are very resilient because they are, by and large, strong depositors. For those that are looking for lending, we have found that the process that they come through with us is one that determines a future, scenario planning, which normally allows for the downturn and, as such, we haven't seen a tightening of any credit conditionings.
Dobbie: So the number of loan applications you're getting now, it's pretty much the same as it's always been, or are you starting to see a slide?
Goudswaard: No, we're actually seeing a slight uptake in the number of loan applications that we're getting.
Goudswaard: Because we have been successful in attracting quite a few new customers. But the average number of applications per customer has held pretty well for the last 12 months.
Dobbie: But you think that's peculiar to ANZ, that the trend general is downward and you've just grabbed more market share?
Goudswaard: Look, I'm not sure that the trend is downward. I think a lot of the facilities that they seek are overdraft facilities, which is sort of a backup plan for when things are going that well with your cash flow. So I think they're probably being a little bit more cautious in showing they've got lines available.
Dobbie: In terms of limiting their risk when they're borrowing money to grow their business it's just being a little bit more careful about your planning. Is that, is that the key?
Goudswaard: I think so, and then I think also that your interest rate scenario would be one in particular that I would encourage customers to look at. Very often people use the present interest rate into the future, to determine whether or not they have sufficient cash flow. I would be trying to plan for what would happen if interest rates were to rise significantly and held strongly, it's my business to actually meet that increased interest cost.
Dobbie: Now this is an area where banks have come into criticism in the home loan market: for doing completely the opposite to that and really not allowing for sufficient growth in interest rates. So when you're assessing business loans now, what are you internally looking at? What sort of percentage rise are you assuming?
Goudswaard: I tend to just add on two percentage points. If you're running at about eight or nine percent, I'd be looking at say 11 and 12. If you're running at 12 or 14 percent, I'd be adding it to about 16 percent.
Dobbie: Do you think banks are well placed to help people manage risk? I guess there's a certain amount of distrust in the market in the moment.
Goudswaard: I'm going to be biased because I've been with the organisation for 27 years, but I think banks are one of the best-placed advisors that any small business customer can use. Because they do put your through a process where you need to be really clear about what your cash flow and it's dependencies are and in that process, it doesn't take you long to work out whether a customer has a strength or a weakness here and very often one of the things I like to ask a customer is: what do you have to earn every week to break even? If they hesitate in that answer, you could start to say to yourself, I wonder how well they understand their business? And I think for a good business to understand that, they'll better navigate their way through the bad times.
Dobbie: Interest rates are one thing, obviously --- we haven't really seen it yet, but there might be a significant downturn in demand for products as well. So I guess that needs to be factored into forecasts as well.
Goudswaard: Sure and you know, breaking out your costs from the fixed and variable basis so you can actually work at what your breakeven point is in the event these sales come off, is a critical part of the analysis.
Dobbie: So in the small business sector, you've got a lot of small- or micro-business customers that you look after at ANZ --- are there particular industry verticals that you think are more susceptible to risk than others at the moment?
Goudswaard: At this stage, nothing is apparent. We've found, by and large, that small businesses are actually very resilient and they have a great ability irrespective of industry to resize and reshape themselves to the conditions as they find themselves. So we're, we're not at this point yet concerned about any specific industry.
Dobbie: I guess they're more risk averse, aren't they? They have an eye on risk perhaps even more so that some of the larger businesses.
Goudswaard: That is so true. If you looked at our portfolio in small business, which is reported through our annual results, of our total business, 85 percent of it is deposit based. So only 15 percent of our customers actually have any sort of a business lending.
Goudswaard: And that speaks to the conservativism that you're speaking to.
Dobbie: If a small business thinks it's having difficulty with repayments, either because of interest rates or maybe there's a downturn in income, what should they be doing right now? Are you open to talking about refinancing or do the discussions really start when they default?
Goudswaard: The biggest cause of suspicion and lack of trust is that when a customer says at the last moment, "Listen I missed my tax payments and I'm in a really bad way". Continual conversation with banking so that we understand the position of the customer is absolutely critical. And banks will be highly supportive in the event that we are actually working with the customer, rather than all of a sudden being surprised by an adverse position. So my encouragement would be, if you've got any concerns at all, speak to your banker as soon as possible so that it can be quite clear about what's coming on the horizon, and what are the best ways to mitigate and manage those particular issues.