Avanti moves forward
New Zealand nonbanks have largely had to go it alone in the COVID-19 era, at least in the sense of not enjoying the same type of government support afforded their Australian peers. Even so, Paul Jamieson, group treasurer at Avanti Finance in Auckland, says the lender has managed well and maintains a positive outlook on funding and lending.
How has Avanti’s origination fared in 2020?
Originations dried up almost completely at the end of March except for a few mortgage originations that were started prior to the COVID-19 crisis. We had about 20 per cent of our usual origination level in April and May.
After the lockdown ended, however, our auto originations rebounded strongly in New Zealand and Australia. June and July were two of our biggest-ever months in this part of the book.
The mortgage part of our business grew steadily through this period, too. There was a slight dip in early September due to the second Auckland lockdown. However, this was a blip in the progress made since June.
Somewhat counterintuitively, we have actually seen an improvement in our arrears profile. Some of this is due to customers saving during lockdown and not wanting to spend as much in the months since. Instead they are more readily repaying debt obligations.
Our mortgage strategy is to offer a range of products from near-prime to specialist, with a focus on more high-quality originations. In autos, we offer a full range of products from tier-one new to used auto loans. Diversity of offering is important to us and will be a driver of growth going forward.
New Zealand-based nonbanks have not had the same kind of government support as their Australian peers. Has this been challenging?
In March, we began running stress tests in our portfolios and funding vehicles to see how they would deal with lower repayments and higher arrears. The lower-repayments component was because, like the banks, we were offering deferred or reduced payments to our customers.
Our structures have a decent level of excess spread so they can handle a large decrease in income collections and increases in arrears, and still function properly.
What eventuated was no marked increase in arrears and only a small decrease in income collections. The decrease was offset by base rates also falling, which meant we had lower expenses through the waterfall and maintained strong excess spread in our structures.
We lobbied our regulators in April and May to get support akin to that provided by the AOFM [Australian Office of Financial Management]. This did not eventuate, but we are keeping the dialogue open. It has turned out that, for Avanti at least, government support was not needed. However, we are conscious of potential future issues that could arise from the economic situation we are in.
How have you approached funding during the crisis?
We began talking to our funding banks in March around their ongoing support for our business and, once the first lockdown ended, their appetite to support our growth plans going forward. We extended a number of our facilities and increased some by a small amount. We are pleased with the support we received from our funders.
We are also raising capital to support our growth forecasts over the next three years. We are front-loading capital because we think there will be unique opportunities we can take advantage of in the near and medium term, as well as bolstering the balance sheet from a defensive point of view.
What opportunities do you see coming out of the COVID-19 crisis?
Increased capital requirements coming for New Zealand banks could lead them to tighten lending over the next few years, with nonbanks potentially the beneficiaries. Anecdotal evidence suggests this is already happening, though not necessarily driven solely by future capital requirements.
It is currently a 2-3 week turnaround to obtain a mortgage with a big-four bank in New Zealand. We have a strong service proposition with a turnaround time of 48 hours. As rates go down, banks’ net-interest margins are being squeezed so they are likely to look at cutting costs – which could further affect their servicing capability.
Many nonbanks can price mortgages competitively at around the bank floating rate and a lot of customers like the options and solutions we provide.
Finally, the nonbank sector is only around 1 per cent of the market in New Zealand compared with around 8 per cent in Australia. As consumers become more aware of the sector we think it will grow, and if we maintain or build our share we will grow too.
What is your sense of the outlook for securitisation in New Zealand?
We have met with investors recently and we, along with our arranger, are cautiously optimistic about demand. A few new investors are looking at securitisation, including some KiwiSaver funds. This is being driven by investors looking for yield and diversity – and it is very encouraging.