ANZ Commercial says suppliers aren’t being paid on time as businesses service bank loans

Banking major ANZ’s business lending arm says it’s aware customers are prioritising servicing loans and that’s hitting suppliers which aren’t being paid on time.

ANZ Commercial boss Clare Morgan. Picture: Jane Dempster

One of the nation’s biggest lenders says businesses are missing payments to suppliers as companies prioritise loan repayments to banks amid a cost crunch and a slowing economy.

ANZ Commercial is faced with navigating the slowdown, with the performance of the division a priority of the broader banking group in the year ahead.

It comes as data from the corporate regulator shows 1391 companies failed in April, marking the latest dire month in a record year for business collapses.

ANZ Commercial, the smallest of the big business lenders, is confronting a slowing economy, with the performance of the division instrumental to the broader group in the year ahead.

But Clare Morgan, who leads ANZ Commercial, says growing the book will focus on selling more to its almost 650,000 existing customers rather than forays into the unknown.

Ms Morgan said ANZ Commercial was seeking to grow its loan book, which trails its rivers of deposits, as well as boost the number of products it sells to small and medium-sized businesses across Australia.

The lending book is already on the path to growth, rising $2.3bn in the first half of the financial year, taking total loans across ANZ Commercial to $64bn.

This compared to customer deposits, which climbed 3 per cent to $116bn, up $3.1bn in the first half.

Ms Morgan said as the economy slowed, ANZ was on the watch for customers in distress, as well as the potential for scams or fraud, both from customers and from criminal groups targeting companies.

The career banker said ANZ had responded to weakening economic conditions, pivoting its focus in commercial lending as well as increasing the scrutiny of some customers, but noted key parts of the economy continued to perform strongly despite the sag in retail spending.

“I think sometimes there’s this notion that banks are kind of all in, all out,” Ms Morgan said. “The good work quality portfolio management is quite dynamic, and it’s often about the tweaks that you make as you go rather than sort of being really whiplash with your settings, because that’s not good for the economy.”

Ms Morgan said in the case of construction clients, ANZ had looked to double the number of visits to sites “to make sure that things are developing in line with the timeline for that particular project”.

She said the bank had seen several business customers miss payments over one or two months, as they faced a crunch in cash flow, but the lender was still seeing a “relatively good” outlook with little distress.

ANZ Commercial’s performance is a key plank in the strategy of the broader group. Picture: Getty Images

Ms Morgan said ANZ was monitoring customers who while being able to continue paying their loans were showing signs of cash flow issues, with the bank’s systems flagging when business clients missed regular payments.

“Many banks have learned from the past when a customer looks like they’re in arrears,” she said,

“Even just coming up to 30 days, you can engage with a customer, digitally reaching out to them or calling and saying we’ve noticed your income is dropping, we notice you haven’t made a payment or skipped a few payments.”

Ms Morgan said these conservations could trigger customers to scale back working capital payments or restructure their debts.

“It’s happening right now, (though) not at scale, we’re not seeing much of that at all,” she said.

She was conscious of the dangers of a blind push for growth for ANZ Commercial, noting a surge in market share could “destroy a lot of profit”.

Westpac revealed a $254m loss after its attempt to grow its asset financing business saw the bank embroiled in the Forum Finance fraud.

Ms Morgan said ANZ was not just looking to grow the business, but also grow the number of services and offerings it could supply to its mix of SMEs in a “whole of customer engagement”.

“What that means is, for every customer that we have, that customer is going to have a business that they’re running, and they’re going to have a unique set of needs around that business,” she said.

This could see ANZ offering payments, equipment financing, or foreign exchange services, or even wealth advisory to cashed up small business owners looking to sell or transfer their empires.

ANZ can also reach into its institutional bank, which boasts a sprawling footprint across Asia, for services for commercial customers looking beyond Australia.

“Let’s come to market with something that is a good offering for business customers, that meets many of their needs, drives returns for us and sets us apart in the market,” Ms Morgan said.

ANZ’s net interest margin, or the measure of profitability between the bank’s borrowing costs and lending rates for customers, has held up better than the retail division, which has been hammered in the face of red-hot mortgage competition.

The commercial business reported a 7 basis point fall in margin to circa 2.6 per cent in the first half, compared to the retail bank where margins slumped 12 basis points to 1.94 per cent.

ANZ also revealed it was pumping up provisions, dumping a further $70m into a credit impairment charge, taking its total buffers to $4.04bn.

The bank has been investing in its commercial division, with ANZ outlining further growth of the business as a key plank of its strategy in May.

Ms Morgan said the rollout of ANZ Plus, currently at large in the retail bank, was a key element of this push.

It planned to have its first cohort of business banking customers using ANZ Plus in the coming 12 months, with a view to launching the banking platform across the commercial business within two years.

“Small business customers often want to toggle between their personal finances and their business finances, so being able to do that in Plus is something that we’re focused on,” she said.

“At the other end of commercial, where we start to get into the more emerging corporate kind of customers, we are also working on bringing transactive global down into commercial to make it a bit easier for commercial customers to use.”

Originally published as ANZ Commercial says suppliers aren’t being paid on time as businesses service bank loans