NAB agri collective provision overlay due to NZ dairy

The bank has seen an increase in agriculture collective provision overlay this year due to depressed dairy markets, but has reduced the level of assets 90 days past due in Australia.

The National Australia Bank has seen an increase in agriculture collective provision overlay due to a depressed New Zealand dairy market, according to its senior agribusiness manager for Asia, Laura Mattiazzi.

“That collective position is really to look at the provision on the balance sheet to cater for the economic cycle,” she said. “On the agriculture front the dairy industry has been in a downturn for about two years now because of the oversupply at a global scale. NAB has quite a bit of exposure in New Zealand and a sizeable part of that has gone into the dairy sector.”

Overall, the bank’s mining and agricultural overlay stands at A$102 million ($76.69 million; €68.87 million). It lends in the US, Australia and New Zealand, with agriculture, forestry, fishing and mining representing 7 percent of its overall portfolio.

Dairy represents 62 percent, or NZ$8.4 billion ($6.09 billion; €5.47 billion), of the New Zealand agribusiness and dairy portfolio. Sixty-four percent of the latter is fully secured, 34 percent partially secured and 2 percent unsecured, according to an end of March NAB report.

Dairy impaired assets are currently assessed as having no loss as a percentage of dairy exposure at default. The bank’s fully secured New Zealand dairy assets stand at 62 percent, partially secured at 38 percent, and unsecured at 0.3 percent.

Agriculture is a key area of expertise for the bank, with 38 percent of its agri debt in New Zealand and 62 percent of its exposure in Australia. In fact, it has a 30 percent market share in banking for Australian agriculture, making it the strongest individual player, according the report. NAB’s Australian agriculture portfolio has also reduced the value of assets 90 days past due from 1.75 percent in September 2014 to 01.17 percent in March this year, or A$167 million.

“Overall in Australia there is a lot of confidence in the agriculture markets,” said Mattiazzi, saying there were drivers in the industry for debt from both healthy and difficult markets. “In beef, there has been a shift in production at the processing level; there was a backlash from footage of animal cruelty but that is being watched. There is a lot of talk right now in Australia about how to ensure our market share in boxed beef, especially in China. The wheat industry is looking quite good but it is facing depressed prices on a global scale. It is a mixed bag but overall there is a lot of confidence.”