Corporates regain appetite for growth following OCR cuts

A change in direction from the central bank has corporates coming out of hibernation and gaining confidence to shift gears into expansion mode.
With inflation inside its target band, earlier this month the Reserve Bank cut the official cash rate by 50 basis points to 4.75 percent.
This larger than usual interest rate cut puts interest rates at an 18-month low.
Corporates represent a diverse grouping of privately-owned companies employing around 100 staff. They sit well above the small business segment, but below large publicly listed companies, and play an important role in the New Zealand economy.
Dave Handley, General Manager of Corporate Banking and Agribusiness at BNZ, said the past two years (when interest rates increased to combat post pandemic inflation) had been challenging for businesses right across the spectrum.
“Corporates have strong balance sheets – they’re typically well capitalised and governed, so most of them traded well throughout Covid.”
Despite this, Handley said these corporates had to stringently manage costs and refine their customer value proposition.
“Whilst they’ve had the balance sheet strength to trade, they have had to make choices and trade-offs – a lot of them deferred major capital expenditure or expansion plans.”
Handley said there were different challenges and pressures sector to sector, but BNZ’s corporate bankers were seeing a noticeable improvement in underlying sentiment in the economic environment.
BNZ’s most recent markets outlook addressed speculation of the possibility of a 75-basis point cut. While its chief economist Mike Jones didn’t completely rule out the possibility, he stood by predictions for a further 50 basis point cut in November.
A second 50-point cut would drop the cash rate to 4.25 percent.
If the November OCR cut eventuates and inflation stays within the Reserve Bank’s target range, Handley said it would give corporates further confidence.
“We don’t want to overplay it; there’s still a potentially challenging period for the next six to nine months.
“All businesses still have to be cognisant of their strategic business model, because it remains a very competitive landscape.”
Many businesses will rightly remain cautious, but nevertheless, Handley said recent discussions he’d had with clients around the country demonstrated a clear change in tone and a willingness to pursue opportunities.
“The level of optimism and confidence has improved, and it’s clear from conversations with our clients how they’re thinking about their businesses and next steps.
“It’s undoubtedly going to be the catalyst for more M&A transactions and businesses assessing their capital structures.
“We have already seen this change in sentiment lead to our corporate customers wanting to discuss funding options and structures for new projects.”
Handley pointed to a few examples including a Queenstown business that, despite the challenging economic environment, embarked on a significant capex project to facelift its facilities – a sign Handley said other businesses could look to for confidence.
“We have a customer in South Auckland that supplies the building industry and is building a new warehouse to meet the growth it’s anticipating.
“We also recently supported a customer in Nelson to acquire full ownership of a business. It’s pleasing to see companies like these doing well and expanding.”
Alongside offering financing, Handley said BNZ’s role includes connecting businesses with other owners or investors to facilitate connections and growth. “If we can introduce other parties to the relationship, it’s valuable for our customers.”
A more upbeat attitude from corporates and a willingness to invest is a positive story for small and medium-sized businesses and the wider communities and regions in which the corporates operate.
“If you’re employing 50+ staff, the performance of your business will undoubtedly flow through to the regional economy, particularly beyond the main centres, and that plays a vital role in supporting the regions’ overall success.”
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