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Demand for business loans down for third consecutive quarter

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Falling business confidence and the effects of the Omicron outbreak continues to weigh on firms’ appetite to borrow.

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Business loan enquiries were down 19 percent on 2021, while trade credit fell a more modest 0.5 percent.
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Equifax New Zealand’s business credit demand index, which measures credit enquiry volumes for asset finance, business loans, and trade credit, suggests overall demand fell for the third consecutive quarter, declining 9.2 percent in the three months ended March versus the same period a year ago.

Business loan enquiries were down 19 percent on 2021, while trade credit, which is the extension of credit from one trader to another, fell a more modest 0.5 percent.

“Business credit demand has held up relatively well despite the March quarter being heavily impacted by the Omicron outbreak and continued weakness in business confidence,” Equifax New Zealand managing director Angus Luffman said in a statement.

Businesses in the accommodation, food services and retail sectors were among those who reported a falling desire to borrow.

However, the construction sector recorded a year-on-year lift, with credit enquiries having increased by 3.8 percent on a year ago.

“This is despite multiple constraining factors including staff shortages, rising materials costs and supply chain restrictions,” the company said in a statement.

The demand for asset finance, which is when firms borrow against assets they currently own, was another bright spot in the report, with enquiries jumping by 3.6 percent on the year prior.

The increase was led by strong interest from agriculture, forestry and fishing businesses who had benefited from high commodity prices and heavy demand from overseas to start the year.

Looking ahead, Luffman said he would expect to see changing lending needs as the economy and the borders open under the orange traffic light setting.

“At the same time business proprietors will likely remain circumspect about taking on new debt in the near term, taking time to build confidence before they up their borrowing to invest.”

He said this would be particularly true for firms which have had trading activity disrupted by travel restrictions and more consumers working from home.

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