Finance companies buoyed by tighter bank lending - KPMG survey

Monday 17th December 2018

Non-bank lenders are filling the gap left by their licensed and larger counterparts imposing tighter credit criteria, with bigger loans books and rising profits in 2018, KPMG's latest survey shows.

Net loans among the 25 financiers participating in KPMG's 2018 non-bank financial institutions performance survey rose to $11.24 billion from $9.8 billion a year earlier, while profits were up 23 percent at $232.6 million. Out of those lenders, 15 reported increased profits and one - Latitude Financial Services - was a new entrant.

John Kensington, KPMG's head of banking and finance, said the non-bank lending sector experienced much faster growth than their banking competitors, although non banks play a marginal role in the nation's total home lending at less than 1 percent.

Kensington says banks are more focused on their core markets.

"This seems to have resulted in less competition from banks reaching into the non-banks' niche segments, but also some non-bank participants are seeing business normally transacted by the banks."

New Zealand's non-bank lending sector is dominated by ANZ Bank New Zealand-owned UDC Finance. Its $3.22 billion net loan book accounts for about 28 percent of surveyed firms and its $65.3 million profit was 28 percent of the aggregate net profit. Latitude has the second largest loan book at $1.43 billion, followed by Toyota Finance New Zealand's $972 million.

Kensington said the New Zealand regulators' investigation into bank conduct and the Royal Commission across the Tasman had discouraged licensed lenders from pursuing riskier business, despite the ongoing demand for credit.

Executives of non-bank lenders surveyed by KPMG said they didn't think they had the same conduct issues as banks and have adopted a 'wait-and-see' approach to see whether they will get captured by regulators' scrutiny.

Kensington said banks' more cautious approach may lead to tighter credit and may encourage borrowers to turn to the non-bank sector.

Credit quality also deteriorated for the small end of town, with gross impaired assets at $94.5 million, up from $83.2 million a year earlier. The aggregate impaired asset expense as a ratio of average loans increased to 0.84 percent from 0.38 percent. That included Fuji Xerox Finance at 12.27 percent, which was still contending with the inflated revenue and incorrectly reported related-party income at its sister company.

(BusinessDesk)

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