Be proactive with your banking relationship during the Aged Care Royal Commission

October 8, 2018

With the announcement of a Royal Commission into the aged care sector, it is inevitable that key stakeholders will focus their minds on its potential findings and the short term and long term implications for the industry.  In recent years, aged care has been seen by many financiers as a high growth and attractive area for lending given the shortage of services and the stable nature of the industry (up to now).

Your bank is a key stakeholder in your business and will definitely be keeping a close eye on the Royal Commission’s developments and findings as they become known.  At this stage, it is hard to predict whether the Commission will have an impact on banks' current expansive risk appetite for the sector but we offer the following guidance to assist you in being proactive with this major and influential relationship:

  • Reporting: normally done on a quarterly, six monthly or annual basis.  Once the Terms of Reference have been announced and you have compiled your initial analysis on the Commission’s likely impact on your organisation and the industry, we would suggest holding a meeting with your Relationship Manager (if you don’t already have a regular meeting scheduled) to provide him / her with your organisation’s views and the steps you are taking to deal with issues raised or likely to be raised by the Commission.  Company attendees that should participate in this meeting are your CEO and CFO and consider whether your Chair and/or a Finance Committee member should also attend.  This is a great sign of how proactive you are and demonstrates to your bank that you are across industry issues and are considering strategies to anticipate and deal with them.  

  • New and/or increased funding: given our previous comment around potential uncertainty of banks’ risk appetite for the industry, it is now more important than ever to clearly demonstrate your organisation’s abilities and be precise on the need to borrow more money in pursuit of your strategic objectives.  Banks use the 5Cs of Credit (Character, Capacity, Collateral, Capital, Conditions) as the underlying principles of their credit assessment process and it is clear that the Royal Commission will impact on Conditions, which refers to the industry and economic environments.  Preparing clear, concise and coherent information, with a range of financial forecast scenarios, is prudent and necessary to support your application for such funding.

We have significant insight, knowledge and experience on dealing with banks and can leverage this expertise for your organisation’s benefit.  Our key operating principle for banking relationships is one of “no surprises” and using this as a standard, this should guide you on when and what information you should be sharing with your bank in the coming weeks and months.

If you require further assistance on how to communicate your position with your bank and/or successfully position your organisation for increased debt funding, please do not hesitate to contact us.