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Property lender Dominion Finance Holdings has cut back its new lending and expects its loan book to reduce this year as it battens down the hatches to cope with a tough outlook for debenture reinvestment rates.
Dominion Finance Chief Executive Paul Cropp told interest.co.nz the finance company was doing very little lending at the moment and expected its debenture reinvestment rate to remain around the 50 per cent mark, above that of many other finance companies. Many potential borrowers and developers had pulled back from the market because of widespread uncertainty, he said, pointing out that even banks were being careful lenders given tightness in the supply of equity.
Cropp said some other large finance companies were being naïve to believe they could keep on lending as per usual in the current environment given the low reinvestment rates throughout the industry.
Dominion Finance Holdings had NZ$482.6 million of assets at the end of September and announced late on Thursday it expected those assets to fall 10-15 per cent by the end of March. However, it said margins had improved and operating costs were lower than expected, meaning the forecast net profit would be around NZ$13-14 million, down only slightly from the NZ$14.11 million reported the previous year.
Dominion Finance, which also includes North South Finance, specialises in first mortgage lending on property. Most of North South's loan book worth NZ$147.2 million at the end of September was on first mortgages in the NZ$1-2 million range. Dominion Finance has first mortgages in the NZ$2-4 million range which totaled NZ$335.4 million at the end of September.
Cropp said Dominion Finance Holdings had NZ$55 million of equity, NZ$40 million from a capital note maturing in 2010, NZ$90 million in bank funding split between Bank of Scotland (NZ$70 million) and ASB Bank (NZ$20 million), with the remaining funding (NZ$250 million) coming from debentures.
He said the average maturity of Dominion Finance Holdings debentures was around 23-24 months, while its loans had an average maturity of 14 months. Dominion Finance would call in its loans on maturity to match the expected fall in the amount of debenture investments, he said.
Dominion Finance had little exposure to the struggling Auckland apartment market, with just one loan to an apartment project on the fringes of the city.
- INTEREST.CO.NZ
