NZF Group profit to drop on waning loan demand

By Jane Shanahan

Friday 15th August 2008

NZF Group, the finance company that owns 50% of Mike Pero Mortgages, said profit will fall this year because of waning demand for loans. Bad debt is "negligible," it said.

Net profit for the year to March 31, 2009, is expected to be between $2 million and $2.5 million, it said in a statement. That compares with $3.8 million a year earlier.

The profit downgrade contrasts with failures and moratoriums at rival firms that have run out of cash to pay investors, leading to failures and moratoriums. The bulk of NZF's $259 million loan book is bank financed, mainly with Westpac, and the company has a NZ$40 million line of credit from Commonwealth Bank of Australia, it said today.

Finance companies hardest hit by the credit squeeze have been those reliant on raising funds via retail instruments such as debentures. NZF has NZ$51 million of debentures.

"NZF has not chased market share at any cost like other finance companies," said chairman Richard Waddel. "Our prudence has proved our strength in this market."

The company has also sold capital notes in the past few years, including NZ$20 million in 2006, when it bought Mike Pero. Last year it acquired 51% of consumer finance and broking company Finance Direct.

The housing market is unlikely to emerge from its slump before the end of the year, NZF said. The company also has to mark to market the value of hedges it holds against movements in interest rates under IFRS, which will dent net income, it said.

Reserve Bank Governor Alan Bollard cut the official cash rate to 8% last month and is expected to continue lowering borrowing costs this year, economists say.

Its shares were unchanged at 40 cents today and have declined 40% this year.

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