NAB Turns to Clients’ Asia Deals as Local Business Lending Lags
National Australia Bank Ltd. (NAB), the country’s largest lender by assets, is advising a dozen domestic and Asian clients on deals worth as much as A$500 million each as it expands in the region amid slow corporate lending at home.
The potential transactions, including acquisitions and partnerships, are in the renewable energy, agriculture and health sectors, Spiro Pappas, chief executive officer of the bank’s Asia business, said in an interview in Sydney. Australia’s weakening currency has boosted Asian interest in Australian property and businesses, he said.
The country’s biggest corporate lender is following borrowers into Asia with 25 percent of its small business customers and nearly 40 percent of its larger clients now active in the region, Pappas said. NAB’s Asian push is smaller than that of Australia & New Zealand Banking Group Ltd. (ANZ), which wants to draw 30 percent of its revenue from the region by 2017.
“We’ve been expanding our footprint in Asia over the last couple of years and particularly over the last 12 months,” NAB’s group executive for business banking, Joseph Healy, said in the interview on Aug. 13. “The agri sector is a particularly attractive place for many of our Asian clients to look at and I think with the dollar easing as it has done, that is going to open up interest in leisure and tourist assets too.”
NAB has around 500 employees in Asia including a number of senior bankers that have moved to the region from Australia. It doesn’t have an employment target for its Asian businesses nor does it separate out its lending or balance sheet for its operations in Asia.
“We’re moving the resources to where we see the opportunities that are defined by what our customers are doing,” Healy said. “If we end up doubling our full-time employment in the next couple of years then so be it.”
At least six other NAB senior bankers in Australia are finalizing plans to move to the bank’s Asian offices, which focus on Hong Kong, Singapore and Tokyo. It also has offices in Beijing, Shanghai and Mumbai.
NAB has organized more than 30 client introductions this year for Australian and New Zealand customers interested in China or Japan and Chinese clients looking for potential investments in Australia, Pappas said.
In Australia, a lack of confidence has reduced businesses’ appetite for credit while competition in the sector is high, Healy said. Business lending grew 0.9 percent in June from a year earlier, the lowest since November 2011, according to central bank data.
“You might see one month a little bit of growth, but there’s no natural momentum to it,” he said. “Margins on new business can be between 20 basis points and 30 basis points lower than the margin we’ve been enjoying on our portfolio.”
Business confidence slumped in July to an eight-month low and remained “extremely poor” in the key mining industry as interest-rate cuts and a weaker currency failed to encourage companies, a NAB survey showed on Aug. 13.
The Reserve Bank of Australia has reduced borrowing costs eight times -- for a total of 2.25 percentage points -- since November 2011 as the local dollar’s strength dragged on growth and a mining investment boom crests.
A revival in confidence hinges on reduced global volatility, more stable outlook for China and a majority government in Australia, Healy said.
Australia is holding national elections Sept. 7 and opinion polls point to the opposition Liberal-National coalition, led by Tony Abbott, gaining power at the expense of the Labor government, led by Kevin Rudd.
Once business confidence improves, then lending will pick up as “financial leverage in corporate Australia is close to a 50-year low” providing capacity for mergers and acquisition or other forms of expansion, Healy said.
NAB’s business banking unit was the largest contributor to profit in the six months to March 31, filings show. It posted a cash profit of A$1.24 billion representing 43 percent of the bank’s total in the period.
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