The Sheet: Adelaide Bank delegates credit process to Great Southern

Assuming Great Southern sustains its growth rate of 50 per cent, the plantation company will be seeking funding from Adelaide Bank of in excess of $300 million in the 2005/2006 year.
Most of the people becoming “growers” with Great Southern are referred by their accountants or financial advisers and are hoping to minimise tax while investing. For example, a person in the top tax bracket who invested the minimum $3000 (plus GST) in a plantation would be able to finance it with an interest-free loan of two years and would be eligible to an immediate tax rebate of 47.5 per cent.
Great Southern’s finance manager Bruno Romeo said: “We are developing quite a strong performing loan book. I guess because of that loan book we are courted by the banks.
“The banks, they buy as much as we give them and they’d like to buy more if they could. They have a healthy appetite for these kinds of products.”
GSP holds 10 per cent of the loans securitised in a collateral account as security. In addition GSP retains a five per cent exposure to any default on the loans.
Adelaide Bank entered the portfolio funding business in June 2004. The bank reports that last financial year it established eight new portfolio funding partnerships (though the identity of the others is not disclosed) and securitised $300 million of these loans.
The bank’s partners are in the areas of leases, personal loans and store cards. It has a further five partnerships under consideration and chief executive Barry Fitzpatrick believes the market in Australia for similar funding relationships is worth up to $200 billion.
But at present the bank is guarded in talking about a business regarded as lucrative and with plenty of growth potential. Fitzpatrick said in recent media reports that portfolio funding was low cost and high margin.
Anthony Baum, head of funds management at Adelaide Bank, said that it is securitising loans “given under a very diligent credit policy and procedures”.
Adelaide Bank operates a quarterly audit with each partner and participates in the ongoing management of each partner’s compliance programs. For example, Adelaide Bank controls the cash flows – the direct debits – on the loans.
Even so, Great Southern does a lot of the legwork relating to the origin of the loans provided by Adelaide Bank. The plantation company evaluates the net asset position of clients and serviceability ratios, and analyses credit histories.
Romeo said use of internal finance is the most efficient way to write these loans rather than bring in third parties. This is because Great Southern is mainly financing blocks of forestry products and a bank cannot easily take control of these assets, which may be under a hectare in size.
As a reluctant Baum said: “This business is actually so fantastic I don’t want to talk about it.”