Brokers urged to tap into opportunities
Brokers working in equipment and asset finance are being encouraged to look to the agricultural sector and regional Australia for growth opportunities as borrowing booms in this market.
According to the recently released NAB Regional & Agribusiness Horizons Report 2024, demand for credit in the agricultural sector grew by 9.1% in 2023, despite adverse interest rates, weather and trading conditions.
Nationally, equipment finance was also in a strong position, with appetite for vehicles and equipment up 10% for NAB customers. Tasmania led the way for all states, with 37% growth.
The next strongest state for growth in equipment finance was Victoria at 21%, followed by Queensland (14%), South Australia (4%) and NSW/ACT (4%), while Western Australia recorded negative growth of -3%.
NAB’s Horizons Report, also provides detailed research on agriculture and consumer trends, and data on regional and rural property, debt and cash flow and deposits.
Motor vehicles represented the dominant category for growth in new equipment funding at 35%, compared to trucks at 8%.
Regional and agricultural demand for electric vehicles was also up 283% year on year.
MPA sought comment from NAB head of equipment finance Chris Fileman (pictured above) to gain some insights into the main drivers of credit growth.
NAB explains why equipment finance is growing
The report said that the 10% national growth in NAB new equipment funding showed confidence among regional businesses in current and future trading conditions, despite tax and interest rate headwinds.
“The big stories in equipment sales this year were the end of the instant asset tax write-off scheme and the easing of supply chain woes that have caused frustration for purchasers,” it said.
Fileman said demand for equipment finance had been at an all-time high in regional Australia due to great weather conditions ensuring high yields for crops.
He said the beef and mining commodities had also attracted very high prices.
“This has allowed our farmers, regional customers, and miners to have more cash flow and in turn they are spending more on replacement equipment,” Fileman said.
Looking at Tasmania, which recorded 37% growth, Fileman said this was due to NAB having a local equipment finance representative on the island for the first time.
“This has gone down very well with our customer base. Whilst demand is still high, we are starting to see signs that it will slow down in the back end of 2024,” he said.
Demand for motor vehicle finance
The NAB Regional & Agribusiness Horizons Report said that the growth in appetite for new cars reflected the greater availability of imported vehicles.
“Regional businesses are continuing to muscle up by adding new vehicles and equipment to their fleets and portfolios, despite higher interest rates and the end of the advantageous instant asset tax write-off scheme,” the report stated.
“That demonstrates both strong trading conditions in 2023 and confidence they’ll continue into the near future.”
Fileman said the reason for the surge in motor vehicle finance (up 35%) was due to the supply chain issues suffered during the COVID years.
“Ultimately, we saw a huge reduction of new vehicles enter the country for an 18 to 24-month period,” he said. “This in turn drove up the price of used vehicles. The supply chain has now eased, and we are getting new vehicles in, however still not at pre-COVID levels.”
Fileman said he doesn’t think demand will rise for agricultural equipment in the short term due to the amount spent on these assets over the past 24 months.
“However, truck sales will likely be strong for a few more years due to manufacturers not increasing units to pre-COVID levels right across the world, creating an over demand versus short supply,” he said.
EV growth reflects green demand
While electric and hydrogen vehicles are still maturing as an asset class, the report revealed there had been some impressive growth in 2023, with regional and agricultural demand for electric vehicles up 283% year on year.
“Since NAB rolled out the Green Finance initiative for equipment in mid-November 2022, hundreds of Australian businesses have taken advantage of favourable contracts and government support while reducing their carbon footprint,” the report stated.
The list of qualifying equipment extends beyond electric and hybrid vehicles to solar installations, waste management and recycling plants, and sustainable agricultural and manufacturing equipment.
NAB said that in 2023, a handful of advanced sustainable equipment started to come through in transactions, including agricultural motorcycles and headers.
“With electric charging infrastructure set to triple in 2024, new electric vehicles hitting the market at a price point of around $30,000 (as opposed to the $100,000 for premium vehicles) and continuing innovation in agricultural equipment, there’s every expectation that this segment is getting ready to take off.”
Fileman said factors driving demand for EVs included customers being more conscious of their carbon footprint and the lower running costs of EVs.
“As the price for EVs comes down, we will see our customers be more active in this market on the proviso that the infrastructure is available in regional Australia,” he said.
Brokers encouraged to target opportunities
NAB encouraged asset and equipment finance brokers who are working to help customers with their lending needs in the agricultural and regional sectors to be proactive.
“Brokers can make the most of working in equipment and asset finance by ensuring a clear line of communication with their customers on a regular basis, keeping them abreast of economic and market changes and partnering with their customers in growing their business,” Fileman said.
“NAB assists both brokers and customers for equipment finance through understanding numerous industries and providing timely data and economics. We provide a timely service proposition as equipment finance is a highly portable product and very competitive.”
You can read a full copy of the NAB Regional & Agribusiness Horizons Report here
What opportunities are you seeing in asset and equipment finance? Comment below
