Lending cut back as Reserve Bank keeps close watch
KEY POINTS:
More finance companies are scaling back their lending activities as a result of a funding squeeze that now has the Reserve Bank monitoring the situation on a weekly basis.
Allied Nationwide Finance chief executive John Mallon said all finance companies in New Zealand would have felt the impact of the 10 failures in the industry over the past 18 months, with reinvestment rates and new fund flows from investors slowing.
"We have reined in our lending, but we are still looking after our existing customers, we are still doing new deals but for shorter terms - six to 12 month on first mortgages, lending on property or plant and equipment, and just being a bit more selective on where we're placing our money."
Mallon said Allied Prime had $31 million in cash reserves, "but the market is a little uncertain at the moment and the prudent thing to do is maintain a strong liquidity position".
"It's my view that this market will stay very difficult for the next six to 12 months."
Rudi Kats, chief executive of Broadlands Finance, said his company was also lending at "reduced amounts".
The Business Herald understands Broadlands may also reduce staff levels.
"Let's just say we are reviewing our options," said Kats.
Meanwhile, on concerns about the economic impact of a weakened finance company sector, and ahead of assuming new duties as the industry's prudential regulator, the Business Herald has learned that the Reserve Bank is now monitoring weekly funding flows and other data from the sector.
A Reserve Bank spokesman said the bank was "monitoring the sector closely, but the first port of call is the trustees who have the principal responsibility for monitoring individual finance companies".
"So the Government, and we're part of that, is monitoring the sector as a whole."
The chairman of the Trustee Corporations Association, Clynton Hardy, confirmed members of his organisation were working with Ministry of Economic Development and Reserve Bank officials to gather weekly data from finance companies to produce a "whole of sector" report.
Hardy said the data were primarily for statistical purposes and were provided on a confidential basis.
"No particular finance company can be identified from it, and it's just a matter of showing trends.
"Our client finance companies also seem to be quite happy to work with us. As far as I am aware, the majority of finance companies are providing the data."
Hardy said the weekly reports, which the Business Herald understands were initiated within the last few weeks, were "principally related to the current liquidity issues in the sector" and included figures on reinvestment rates and new money inflows.
Hardy said his Trustee Corporations Association was keen to build the relationship with the Reserve Bank and other officials ahead of the introduction of the new regulatory regime.
A lack of "whole of sector" data from the finance company industry had been identified as an issue during the Government's Review of Financial Products and Providers which was completed last year, Hardy said.
It is not known exactly how much money New Zealanders have invested in finance company debentures and other securities orthe maturity profiles of those investments.
Geneva Still Lending
Geneva Finance, which the Business Herald yesterday reported had ceased lending, had stopped lending only to some clients, chief executive Shaun Riley said yesterday.
The firm had not wished to confirm or deny a lending freeze on Monday because it was in the process of informing affected parties, he said.
"There are others where it's business as usual. We're not lending at a normal level because we're being prudent by lending at a level that our business allows.
"By managing our liquidity closely, we believe we are doing the right by all of our stakeholders."
Riley reiterated that Geneva still had strong support from Bank of Scotland International, with which it has a $50 million line of credit.
Ratings agency Standard & Poor's has said the facility is vital for maintaining the company's credit-worthiness at current levels.
