Talk Around Town

TALK AROUND TOWN

Tis the season for Elections it appears, between Victoria late last year, NSW and now heading in to a Federal Election in May.

The odd thing this time around it at appears in each one, the result is a forgone conclusion.

Despite which side of politics you may reside, the end result will either be a little more or a little less in your pockets. At the end of the day, business will roll on regardless with little or no change.

The final report from the Hayne Royal Commission in to Banking ended with a whimper not a BANG! The big Banks copped a caning and some humiliation in the public domain but are basically marching on unscathed.

The Banks have made some internal changes post reviewing their credit policies that have resulted in a far greater level of disclosure. We are still getting deals approved, but we require your help in doing so. We will be requesting more detailed information and providing Banks with a greater level of disclosure than ever before.

Interest rates are stable at the moment as they have been for some time now. I’m not Nostradamus but I don’t see any movement, up or down, before at least November 2019.

Infrastructure projects continue to roll on and these opportunities are creating demand for new product amongst our clients, which is a very positive thing

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WOW… JUST WOW, The Banking Royal Commission has unearthed a raft of allegations against the major Banking institutions in the land. Alleged bribery, forged documents, repeated failure to verify customer’s living expenses before lending money and misselling insurances to people who can’t afford it.

All the four Banks; CBA, ANZ, NAB and Westpac have been caught up in the Royal Commission, not one has been spared and the evidence to date has been appalling.

In addition, last August Austrac (Australian Transaction Reports and Analysis Centre) announced it was suing the CBA Bank for 53,700 breaches of money laundering and counter-terrorism financing laws after the Bank failed to report $77m worth of suspicious transactions.

In November, the federal court-imposed penalties of $10m each on ANZ and NAB for attempting to manipulate the bank bill swap rates.

So how has this impacted the financial services industry and what does it mean for you, right now?

Every week a new revelation comes out of the Royal Commission, and the next week the Banks change their processes and terms of reference to try to stay ahead of any report or recommendation that will be handed down. The first interim report from the Royal Commission is due in November.

It means that transactions that may have been approved last week will no longer get the ‘green light’. It may mean that the level of information that we require from you to gain approval has increased 5-fold from last week to this week.

It means that pricing for each transaction changes as Banks realise that there is a greater cost on them to meet the new level of compliance required.

In some cases, each and every deal is subject to an audit after the transaction has settled…this has made the credit staff extremely nervous in a) making a decision and b) being able to justify why they made the decision…hence, every detail has to be correct and the applications we submit need to be complete and comprehensive.

I ask you to be patient with us as we work through the changing landscape of what is required and if we seem to be asking for more and more information to satisfy a loan approval, be rest assured it is required.

Our team is getting weekly updates from all banks & finance companies that we deal with (some 25 at last count) and we are perfectly placed to guide you through the ever-changing labyrinth of requirements to get you, our clients the best deal available – first time.

With over 22 years’ experience in funding trucks, equipment and machines, be rest assured we understand what is required and still maintain a + 90% success rate on all applications.

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So just where are we at after 10 years of the GFC?

It would appear that some commentators are split…one stating we are heading for 8 interest rate increases in the next 2 years, and another stating that there would not be a change in 2017. Both statements made within a week of each other and both by former Reserve Bank board members.

What the RBA did say recently, the ‘normal’ for interest rates as they see it, is around 3.5% – we are currently sitting at 1.5%, so there is obviously ground to be made up to reach 3.5%. However, no time frame has been put around just when and how often we can expect increases.

If the AUD$ goes north of USD$0.80, which appears possible, I would not expect another cut. The only way from here is up, but we may not see the first increase until 2018.

Property price crash predictions have now been replaced by more conservative observations that property prices will not crash but slow to small single digit percentage increases year on year.

The one thing that most experts are agreeing with, is that within business the conditions we are seeing now and for the past 6-8 months have returned to where they were pre-GFC. This level of business confidence is a great sign of things to come.

Couple that with Government infrastructure spending and numerous big and small projects now on the go, especially prevalent in Victoria and NSW…we enter the new Financial Year with renewed vigour and enthusiasm.

(Below, reported on ABC News from NAB report, 12/7/2017)

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We continue to see the low interest rate environment dominate the current economic cycle. This shows no signs of abating any time soon. There are some economists predicting the next RBA decision on movement of rates will see a further reduction – personally I’m not so sure.

I can see the current rate held for some months to come, well in to 2017…

The rise and rise of house prices has been ongoing, despite experts predicting its demise. It will be an interesting watch and observe what eventually happens in this area.

Whilst the RBA has lowered interest rates to the lowest point in history, the Banks/Financiers are certainly holding firm on their margins when pricing equipment deals. With equipment lending offering fixed rates for the term of the loan, the lenders are making a decent margin on these transactions.

In fact, we saw lower interest rates offered on Cars and Equipment 12-16 months ago than we are seeing now. Don’t get me wrong, the rates on offer are still low by historical standards but the lenders are definitely maintaining some ‘fat’ or margin in these deals.

What we are seeing is our lending panel show some enthusiasm for doing/approving deals again and the number of settled deals month on month has been very strong. Overall we are seeing a confidence return too small and medium size businesses with Government infrastructure projects increasing and work beginning to flow through the transport and machinery sectors.

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From a business perspective, it has been an interesting 2015. In December 2014, we sent out a marketing email entitled ‘Star Gazing into 2015’ – some of our thoughts/predictions included the following;

We thought that official interest rates may see 3 rate reductions over the 12 months and go as low as 1.75% – but the RBA has held them at 2.0%, after two reductions.

We also predicted the Aussie dollar would be mid $0.70 cents by year’s end, which is pretty close to where it is now. Our thoughts on fuel pricing also turned out to be correct, with the price of fuel now the lowest it has been for some years.

Our thoughts on the housing market that should see it hold up well in 2015, with increases in housing prices in most capital city areas held true. We did however, expect the share market to remain quiet static during the year, with some spikes late in 2015. The opposite happened and it spiked downwards late and lost any gains made during the previous 12 months. The ASX200 opened at 5,435 points, rose to 5,975 – before falling back to close the year out at 5,106.

So, what is in store for 2016, a little bit of more of the same, some upswing in business confidence maybe – we have outlined out thoughts further down in this newsletter.

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In late 2014, we sent out an email marketing bulletin that in part was ‘Nostradamus’ in its predictions.

It did however cover off on the following items;

  • Interest Rate cuts to (possibly) 1.75% during 2015 – RBA in May cut rates to 2.0%, a record low for Australia – Further reductions will depend on Budget and consumer confidence
  • House prices to continue to grow on the back of low interest rates
  • Stock Market to see gains during 2015, especially second half.
It may not be rocket science, but the trends so far are showing that most of our early predictions for 2015 are ringing true.

The Federal Budget presented no great surprises; it did however include an immediate right off for small businesses buying equipment up to $20,000.  * There is however some qualifying criteria involved in this process, please read our article Federal Budget 2015 for full details before you act on this initiative.