In the asset finance sector, certain names roll off the tongue as market leaders – UDC, Marac and GE (buyers of AGC ten years ago).
These names are being increasingly joined by a new forward thinking cluster of banks moving into this sector, in part to compensate for some finance company failures since 2006/07, which created some ‘slack’ in the equipment space.
This introduces fresh competition and certainty into the asset finance market, which post the global financial crisis (GFC), many welcome. Banks entering the space are inevitably armed with strong institutional financial backing and systems support, as well as established customer service networks, adding weight to their industry proposition. This provides customers with surety around service, which after some tough trading years post the GFC, is being gladly accepted.
There are obvious opportunities for banks to extend their asset finance offering into other areas of business banking, or introduce asset-based finance to existing business customers.
ASB Asset Finance is a recent entrant to the asset finance space, and for general manager David Page the certainty and reputation that big brand banks provide is viewed as a key attribute for lenders.
“ASB entered the asset finance market two years ago, following many clients’ preference to fund their core assets with a sound, reputable provider that understands their business and industry, but can also offer a full range of banking and financial services.”
As a newcomer to asset finance, the thinking behind ASB’s entry was based not just around the around the opportunity to extend their offering, but to also leverage their existing capabilities.
Page explains: “We have the ability to offer a full solution through really knowing our clients’ businesses – so it makes perfect sense for us to fund the income-producing assets, given that we know our customers well, and already provide other lending, transactional and cash flow facilities.”
Across the industry it’s a truism that asset finance is best conducted with experienced asset finance people – it is a specialised business requiring specialist knowledge of not just the financial products, but knowledge across the numerous industry sectors their clients operate in.
ASB’s Asset Finance division has a team of regionally-based, experienced asset finance specialists who deliver their expertise and support to ASB’s local relationship banking managers: “This approach allows our clients to maintain a strong relationship with their banker, and crucially, also benefit from the experience and knowledge that our Asset Finance specialists offer,”
says Page.
Critical to what ASB Asset Finance does, is providing the finance solution to fit the problem. “Our ability to provide tailored solutions that enables our clients to achieve their goals is a major part of what ASB Asset Finance has to offer. Customers can maintain their key banking relationship and have that supported by an asset finance specialist,” says Page.
For Page, providing customer service to the highest standards is essential. “It starts with understanding our customers’ specific needs and offering those tailored solutions through our specialist and relationship teams. All of our asset finance facilities are visible online through our internet banking ‘fast net’, and customers really value this.”
ASB’s Asset Finance specialists work closely with the local banking teams: “They are able to call on significant experience in the industry, and as industry specialists the current team has been in the asset finance sector for over 20 years on average,” says Page. ASB Asset Finance channels into the bank, but leverages the experience of the dedicated asset finance team.
ASB’s Asset Finance division is operated as a commercial segment, providing loans secured on productive assets, which can be structured to meet client cash flows.
After the traumas of the GFC era, businesses buying large capital assets place greater faith in dealing with firmly established financial partners, such as banks. Being a bank – or bank-owned – allows for end-to-end solutions to be incorporated to the physical asset funding.
Customers today look to achieve a number of outcomes: reduce funding costs, finance over the asset’s lifetime and manage residual value risk, being just three of those desired outcomes.
As the Christchurch rebuild moves from demolition to construction phase, heavier and more specialised construction and transport assets, such as cranes and quarry tippers, will be required. The recent Mainzeal collapse reminded everybody of the vulnerabilities still surrounding the construction sector and the wider economy.
Those asset finance partners able to extend their offer across the banking spectrum have a good opportunity to build relationships and have conversations on buy-outs, acquisitions, mergers,
re-capitalisations and other financial solutions to help businesses manage the growth and opportunities that the rebuild – and a more general economic recovery – will provide over the medium to longer term.
Most businesses, large and small, have a capital asset of some form; whether it’s a delivery van, a heavy truck, a helicopter or a piece of productive equipment such as a printing press or
an excavator, crucial to the business. This is the funding that ASB Asset Finance has been set up to serve, whether as a replacement, or new assets for businesses in expansion mode.
One of the products that has always been well received by larger fleet operators in the market has been the revolving fleet product.
“We have been fortunate to fund a number of quality clients using our ASB Fleet Finance facility. This makes it simple for clients to set up a limit and add and remove assets as they manage their fleet, providing them certainty and flexibility. Also to have the ability to transfer funds online in real time has been a point of difference,” says Page.
Businesses should have good understanding of the key imperatives that underpin asset finance – loans are typically secured against assets, providing flexibility and helping the business to ‘stand-alone’. Some asset based providers will provide other forms of asset based lending, against debtor balances and factoring, for instance, which for many SMEs is a sizeable chunk of balance sheet assets.
The opportunities for existing asset finance companies lie greatly in an expanding economy and of course, the Christchurch rebuild, to drive long term and sustained expansion.
John Kensington at KPMG reminds us that it’s important to understand the time frames involved. He considers: “A ‘fully-underway’ rebuild is still 18 to 24 months away, while a complete rebuild is probably 10 to 15 years from completion.”
A stand-alone independent finance company may approach things differently to a bank-owned asset finance provider, however, in both cases it is the people, with the asset finance experience and knowledge across the industry sectors such as heavy transport, farm machinery, forestry, construction equipment and plant that will make a key difference.
As we have seen, customers have generally reacted to the GFC by leaning more toward established asset finance names or major banks, with specialised divisions like the ASB or ANZ- owned UDC and Heartland Bank’s legacy brand, Marac.
New Zealand transport and equipment businesses are fortunate in that it has a healthy group of ‘best of breed’ asset finance businesses which came through the GFC reasonably well. Any slack in the market was largely taken up by banks, such as ASB, whose established team has helped them gain rapid acceptance and market share.
Asset finance has been around for a long while – and while the product remains largely as was, it is the new ‘established’ players that have entered the market, which are providing meaningful alternatives and healthy competition across the sector.
These New Zealand best-of-breed asset finance providers, backed by long established trans-Tasman banks, are growing and continuing to provide a flexible alternative to conventional banking products, such as loans and overdrafts, to fund business expansion driven by new economic growth.
