Businesses want to bring manufacturing closer to home, say banks

Commonwealth Bank of Australia’s head of business banking Mike Vacy-Lyle said more than half of the bank’s customers were able to pass on increasing costs to their customers, with overall confidence in the outlook holding firm despite inflationary pressures.

“Business confidence is still very high,” Mr Vacy-Lyle said.

“We expect this to soften over the next quarter, as rising interest rates will probably fulfil the role they’re intended to play.”

Westpac’s head of retail and business banking Chris de Bruin said overall customers are still upbeat.

“They feel that the Australian economic story is better than other places and we’re well-positioned for the current global economic order. They want to invest, they want to grow, but they’re very conscious that it’s now a bit choppy so they’re looking for bankers to help navigate those stresses,” Mr de Bruin said.

He said many customers are now pausing to think about which changes made during the pandemic will become a permanent part of business.

“Clients are reassessing the sustainability of their business models and I think a very big part of that is supply chain. But we’re also seeing changes in demand patterns and post COVID looking to understand how much of that is permanent,” Mr de Bruin said.

Mr Irvine said NAB is seeing much greater investment in warehousing as clients go from “just in time” to “just in case” and look to dramatically increase their stock at hand.

“It’s a significant element in de-risking your business, otherwise orders and customers just go elsewhere,” Mr Irvine said.

“The cost of keeping additional supply pales in comparison to not having access to that stock.”

Mr Vacy-Lyle said working capital cycles are on average now 30 per cent longer as a result of supply chain disruptions.

“There’s been not enough investment in productive capacity and with supply chains in uncertain territory people are finding alternative ways to source goods,” Mr Vacy-Lyle said.

Mr de Bruin says the COVID-19 pandemic-driven shift toward more ecommerce is also impacting the market.

“There’s been a big shift from services to goods given the shift to online consumption, with sustained demand for warehousing and logistics,” he said.

“On the flip side if you’re a services provider, patterns have changed and incidental demand in the cities is lower during the week but higher on weekends.”

Mr Vacy-Lyle said business customers in areas like hospitality and retail are “taking costs out of their businesses” by using new technologies.

All of the big banks are also trending away from securing their lending against cash flows and looking to data to support customers’ borrowing patterns. Mr Vacy-Lyle said this type of lending carries better risk for both the bank and the customer.

The Westpac survey also showed that more than three-quarters of businesses surveyed are planning to implement further sustainability measures in the next 12 months, including reducing energy consumption, adopting more energy-efficient practices and using local suppliers.

Mr Irvine said while most of the focus has been “on the big end of town” in sustainable finance, there is now a need to “make it commercially attractive” for small business to decarbonise.

“Data is key, it needs to be low friction of our customers as you do more with SME customers,” Mr Irvine said.

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