Lasting the distance with NAB

Australian businesses have faced massive dislocation due to COVID and its aftermath, resulting in high interest rates and high inflation. These factors are putting pressure on the economy, creating challenging business conditions.

Chris Thomas, Executive – NAB commercial broker and equipment finance sales, says higher inflation might affect consumer demand and business profitability. But NAB can see what it will take to get through this challenging period to a period of new growth in 2025.

“What our customers and business owners in the market are experiencing as a result of higher inflation is that cash flow is king … the relationship that cash has with viability is enormous, and liquidity will be really front of mind for a lot of business owners,” says Thomas.

Brokers who can help business customers navigate higher rates and higher inflation will be the ones who add the most value. Thomas says business owners are likely to require more financing solutions that support their trade cycle and maintain liquidity levels.

“They’ll be managing stock very, very tightly; they’ll also be looking really closely at management of their debtors and their creditors. And all of that will put a laser-light focus on their cash conversion cycle.”

Business banking 101… and beyond

For Thomas, it all comes down to being able to understand a customer’s business at a granular level, from its strategy to its current and projected financial performance – including profits and losses, balance sheets and forward cash flow projections.

Understanding these elements fully requires a physical presence at the business, backed up by a solid knowledge of the financial tools available to assist.

“When [brokers] are sitting in a client’s premises or walking the floor of the business, these opportunities are arising, these conversations are going on. The really great brokers will walk away with 10 questions that they’ll need to answer for their clients around solving those most immediate needs and coming up with creative solutions.”

NAB can play a key role in this process. Brokers working with NAB have an edge in providing useful advice through the specialist bankers available to backstop brokers. They have “access to the best of NAB”, says Thomas.

“If a broker is working with a farming customer, we are able to introduce a highly qualified and capable agribusiness manager in the region … if we’ve got a broker talking to a solicitor who is trying to restructure ownership of their law firm, we’re able to put a professional services banker in front of that.”

NAB has an advantage in terms of its size and reach when it comes to matching bankers with particular business sectors. “We have more bankers in more places, we have the widest credit appetite in the market. And we are inspired to provide that level of service to brokers through our broker-aligned banker network, facilitated by our senior BDMs and BDMs across the country.”

As well as offering easy access to sector specialists, NAB is invested in helping brokers develop their own banking knowledge. In 2023, NAB ran a pilot program providing credit workshops for broking partners and will expand the scheme in 2024 and beyond.

The program is based on NAB’s training for its own senior bankers with a focus on credit, understanding balance sheets, profit and loss, and cash flows, using real-life examples.

“We take the customer names out of those real-life examples, but we use the fundamentals of the customer’s experience, what that has meant for the way that they’ve asked for finance, and how they presented information. Then we work together in groups analysing the financial statements to get to a point where we actually present a credit proposal – it’s really interactive, and it’s a lot of fun.”

A growing opportunity set

The COVID years saw the number of brokers writing commercial loans grow quickly. While MFAA data for the latest six-month reporting period showed a 4.2% decline in numbers, this was the first drop since 2019, and the figure is still more than 30% higher than in March 2020.

The huge number of brokers branching out into commercial lending since Thomas was appointed lead for the NAB commercial broker team 11 years ago underscores a dramatic long-term shift and underpins his optimistic growth outlook.

“With more customers needing the assistance of more brokers and bankers, there are going to be those that are perhaps operating in the [residential] mortgage-only space at the moment that will aspire to potentially move into the commercial side.”

Dynamics around the emergence of larger financial services hub-type firms, or higher levels of mergers and acquisitions, will naturally push residential-only brokers into expanding their customer bases. He also sees middle-sized brokerages merging to build out their client offerings to cover areas such as commercial equipment finance.

Building for the future

Thomas sees 2024 as a time for brokers to lay the groundwork for longer-term relationships by helping business customers ride out the current market cycle and set themselves up for future success.

“It’s not about the moment, it’s about the future. We want long-term relationships, both with our brokers and our broker-introduced customers… we’re building something together for a sustainable period.”