Borrowing boom: Farmers, manufacturers beef up assets

CBA’s business bank is seeing record levels of vehicle and equipment financing despite the murky economic outlook.

CBA says businesses are stepping up investment in new assets, with regional Australia ‘cautiously optimistic’ on the outlook.

Households are struggling through a cost-of-living crisis but businesses are spending up, with the nation’s biggest lender seeing record levels of vehicle and equipment financing despite the murky economic outlook.

Commonwealth Bank’s business bank saw a 22 per cent jump in vehicle and equipment financing in the first nine months of the year compared with the prior corresponding period, with “green fleets” up more than 300 per cent, according to the lender.

Small businesses are leading the way on electric vehicles, while farmers and manufacturers have also been stepping up investment in new assets, according to CBA executive general manager of business lending, Grant Cairns.

“We’re up strongly year-on-year and we’re seeing that driven by a combination of increased demand for EVs and certainly strong demand from the manufacturing and agricultural sectors,” Mr Cairns said.

Over the nine months CBA saw a 24 per cent jump in funding of manufacturing and industrial equipment such as manufacturing lines, forklifts, and scissor lifts.

Funding activity was higher among regional manufacturers and agribusinesses (up 42 per cent year-on-year), as this segment prioritised investing in moulding machines, packing and cutting machines, silos and other food manufacturing machinery.

Supply chains opening up through the year was one reason for the ramp up in spending, Mr Cairns said.

“Manufacturing businesses are also investing in new parts and equipment where they can see operational efficiencies and the return on investment. And then another important driver is energy efficiency.

“All businesses have certainly seen the pressures of increased energy costs so if they can invest in more efficient plants and equipment and vehicles that can make good economic sense as well,” he said.

Another boost came from the extension to the instant asset write-off scheme, as announced by the Albanese government in this month’s budget, which will help free up cash flow for small businesses, Mr Cairns added.

“As small businesses lean into the energy transition – as evidenced by the sharp increase in green asset financing over the past year – government support such as the (asset write-off scheme) could help propel this trend.”

After meeting with manufacturing clients in regional NSW last week, Mr Cairns said there was a degree of “cautious optimism” among businesses, even as rates and inflation cloud the economic outlook.

This optimism – and the corresponding spending spree – comes as economists point to the divergence in how households and businesses are navigating the higher inflation environment.

Managing director of EQ Economics, Warren Hogan, last week said the gap between business and consumer sentiment showed all the pressure was being felt by households.

“In 2023 we did not see any growth in consumption volumes in this country. That’s only the fifth time since 1980. On each of those previous times consumption stalled, business investment on average fell 16 per cent,” he said at a conference in Melbourne.

“In 2023, business investment rose 7.5 per cent. It’s completely at odds with the historical experience because (back then) it was a credit crunch or a commercial property sector issue.”

The divergence between household and business activity was helping to drive inflationary pressures, Mr Hogan said.

“The inflation story is not dead. We’ve seen a domestic inflation emerge because of stimulus, low unemployment, low interest rates.

“If the economy was going to remain on the narrow path you’d have to see business cost pressures not be able to be passed on to a weak consumer and that would hit profitability, businesses would pull back. That’s not happening.”