NAB will say no to business owners who won’t make it

Financial Review,
NAB’s army of small business bankers are steeling themselves for thousands of difficult conversations in the months ahead as they are forced to deny requests for more debt from overly optimistic entrepreneurs looking to borrow their way out of trouble.

NAB’s Michael Saadie said prudent lending was even more important “when your home is on the line”. 

As Victorian businesses are rocked with a steady flow of bad news, the bank says it has a responsibility to ensure customers are realistic about their chances of success and will offer psychological support for those having difficulty facing up to the task ahead.

NAB’s acting group executive of business and private banking, Michael Saadie, said with large numbers of small business owners securing loans with their homes, the bank needed to be doubly sure about the prospect of recovery.

“When you have your home on the line its even more important,” Mr Saadie said.

“It might be that the business doesn’t have a great outlook and the worst thing we could do is lump them with more debt and erode any equity they might have, when we could be giving them a head start on their next stage.”

Mr Saadie estimates the business and private bank will have another 55,000 conversations with customers between now and November, having already notched up about 220,000 conversations with business customers since the coronavirus descended.

NAB has deferred 39,528 loans from small business owners worth $20 billion as of June 30. About $4 billion worth of these loans are from Victorian businesses.

More detail will be provided when the bank delivers a quarterly update on August 14.

Close eye on hospitality

“You certainly will see those numbers rise. Obviously the second wave has impacted Melbourne and Mitchell Shire quite heavily. We are not seeing the same impact outside of that. Some regional areas doing OK, but we certainly have some hotspots,” Mr Saadie said.

Among the types of businesses the bank is watching most closely are pubs, restaurants, cafes and those linked to the education sector. As the six-month period for loan deferrals begins to unwind from September, some – but not all – will be granted an extension.

Mr Saadie said it was too early to forecast what proportion of businesses would be allowed to extend repayment holidays, however the bank’s analysis of deferred customers was well advanced.

“We categorise our customers into high, medium and low risk. The relationship managers in the business are making those calls. Our preliminary assessment puts more than 50 per cent in the low-risk category,” Mr Saadie said.

The bank is also keeping a close eye on the daily updates of coronavirus infections and deaths held by state governments, paying special attention not just to Victoria but also to NSW, where containing any outbreak is arguably even more important.

“There is a direct correlation between virus numbers and confidence,” Mr Saadie said.

“When I say confidence, I mean the number of people sitting on the sidelines about investment. We noticed after the first stage of the pandemic there was a completely different tone and confidence level, and that has diminished ever since the second lockdown was put in place.”

Despite the need for caution, NAB has made the most of the federal government’s SME coronavirus loan guarantee, ensuring businesses with potential to grow get the capital they need to expand. NAB has issued 5535 loans of the 15,600 issued to date.

The type of customer the bank was assisting with deferrals varied, said Mr Saadie, with the private banking division having its fair share of white-collar workers in hardship.

“You would be surprised when we talk about deferrals the type of customer it applies to. Just think about the professional services staff who have gone down to three days a week or consultants who have had work hours reduced,” he said.

The co-ordinated response to the crisis by lenders, the federal government and regulators had enabled banks to take a different path with borrowers than during previous downturns, Mr Saadie said.

During the GFC, lenders sought to recover capital as quickly as possible, which produced bad outcomes for borrowers and banks as security was enforced and the market saturated with assets but few buyers.

Initiatives such as JobKeeper and the regulator’s concession to allow banks to class deferred loans as performing would ensure a different and more orderly unwinding this time.