I caught up with a friend recently who is a fixed interest broker – ie he sources great deposit rates for clients. Most of his clients are large corporates and institutions. When I asked him how business was going he was quick to admit that things were tough for him at present. He cited to main reasons for this:
1) The banks have too much cash – they can’t lend it out fast enough at present and hence deposit rates are the lowest they’ve been for a while.
2) The need for banks to risk rate depositors, and to hold capital to mitigate against the risk of large withdrawals, is detracting from bank’s willingness to accept large deposits from institutional clients, especially the Super funds.
At the time that he shared this with me I mused at the possibility of the banks lending appetite increasing but didn’t think much more about it. However in the last couple of weeks it has really started to happen! The appetite however is not a credit risk expansion. The banks are still very (perhaps too) sensible here. The expansion comes in their willingness to reduce prices to win good commercial property lending opportunities.
A year ago I was telling clients that if they got a rate margin over the market rate of BBSY of less than 3% for a commercial property secured loan then they were doing ok. A great rate contained a margin less than 2.5%. 3 months ago I was telling clients that they should be expecting a margin above BBSY of approx 2.00% if their bank wanted them to stay.
However in the last couple of weeks I am all of a sudden seeing the banks willing to go below 2.00%. Given BBSY is currently approx 2.3%, and I am getting rates on either side of 4% total. Wow! This means that we are seeing margins between 1.6 and 1.9%. The credit criteria to get these rates needs to be high. These aren’t rates being offered to underperforming businesses. They are however being offered to investors with strong rental returns and even to Superfunds wishing to invest in commercial property.
“How do I get some of that action?” I hear you ask. Tender. Its time consuming but if your credit is strong enough, then it will pay dividends. If you would like us to provide a no obligation, no cost assessment of your likely success at running a tender, please get in touch!