“Consumers are still very reliant on private vehicles to meet their transportation needs while businesses need their equipment to be running so they can continue to operate. As a result, both sectors are incentivised to prioritise loan repayments ahead of other discretionary spending,” de Ree tells KangaNews.

With a business model that is weighted toward loans for new vehicles, de Ree admits UDC has been affected by capacity and supply chain issues, which have led to inconsistent supply. There are early signs this is starting to turn around, he says, while at the same time the transition to electric vehicles (EVs) is opening a fresh revenue stream.

“The New Zealand government’s push for more loweremission vehicles via fee rebates and the clean car standard is providing new opportunities for us,” de Ree explains. “Prices for EVs and hybrids are generally higher than the traditional alternative, meaning finance is more likely to be needed to bridge the gap between the trade-in price and the new vehicle price. This is also attracting new customers to our product offering.”

UDC’s origination activity has also increased on the commercial side of the business. A supportive outlook for commodity prices and large infrastructure projects is flowing through to the provision of services to the construction, transport and agricultural sectors. Some of the pressures being experienced in the economy, meanwhile – a shortage of skilled labour, higher fuel prices and ongoing supply issues – are driving investment intentions on equipment upgrades and increasing automation of mobile equipment, such as GPS steering and agricultural spray drones.

De Ree is not pretending the impacts of inflation and rising interest rates will not be felt by the lender. UDC expects to see some feed-through to delinquencies and defaults from loan serviceability issues, but he says this is from a very low base.

“This is a reflection of maintaining our credit standards during the pandemic and focusing on origination quality rather than volume,” he comments. “While delinquencies might return closer to long-term levels, these would still be incredibly low. Our securitisation structures are more than robust enough that there should not be a problem.”

On the funding side, a jump in issuance cost and lower market liquidity have seen UDC reassess its funding plans this year. It has used a mix of warehouse facilities and funding from its parent, Shinsei Bank, to support growth in the lending portfolio.

“We are in a fortunate position in the sense that strong shareholder support means we can be patient with our timing to market, and for the immediate future we will be leaning on our parent to fund balance sheet growth,” says de Ree. “While our warehouse funding is now almost full, we are comfortable with this position as we completed negotiations to extend availability late last year.”

De Ree says UDC originally planned term asset-backed securities (ABS) issuance from both its warehouses this year to free up origination capacity. “With the way events have played out from a geopolitical and rates perspective, our initial market soundings indicated that the New Zealand dollar ABS market was constrained in liquidity and there was considerable caution among investors,” he tells KangaNews. “We made the decision for now that we do not want to force a trade into the market.”

Being able to issue from one or both warehouses means UDC has options in the type of asset used to support a transaction: a pure auto or equipment deal, or a blended auto and equipment transaction. The latter is most likely, de Ree adds. “As well as being able to size the deal for market demand, including the potential for an EV tranche, it would also allow UDC to issue notes below the triple-A level.”

UDC is waiting for market conditions to stabilise though preparations are well advanced for it to come to market with a term deal, de Ree continues. “As the timeframe to issue this year is shortening, we may look to do a smaller, vanilla auto deal if there is the opportunity and explore bringing a blended offering to the market early 2023,” he adds.