Finance companies face new credit oversight

The Reserve Bank yesterday released guidelines on new rules which will govern finance companies.

Deposit-taking finance companies, building societies and credit unions are required to have a risk-management programme in place from the start of September.

The companies will have to plan for dangers associated with over-exposure to a single industry sector, and an over-reliance on a single source of funds such as retail debentures.

"The programme needs to show how they will identify and manage credit risk, liquidity risk, market risk and operational risks, appropriate to each institution's particular circumstances," said Reserve Bank Deputy Governor Grant Spencer.

Two factors cited in the collapse of more than 30 finance companies over the past three years were rapid deterioration in the property development market and the flight of investor cash out of finance company debentures.

"The development of these regulations is another positive step forward in implementing the new prudential regime for non-banks which is aimed at improving the future resilience of New Zealand's non-bank financial sector," Mr Spencer said.