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Small finance companies and other non-bank deposit-takers with total assets of less than $10 million will not be required to obtain a credit rating under new regulations for the sector, Finance Minister Michael Cullen said yesterday.
As previously announced by Commerce Minister Lianne Dalziel, Cullen confirmed that all deposit-takers including finance companies, building societies and credit unions will have to be registered with the Reserve Bank, which will also oversee their compliance with minimum prudential requirements.
While most will require a credit rating from an agency approved by the Reserve Bank, Cullen said those with total assets under $10 million would not, "but will have to disclose prominently that they are unrated".
All of the nine finance companies that have collapsed over the past 16 months have had total assets in excess of this figure.
Much of the opposition to the introduction of mandatory credit ratings for finance companies has focused on the expense of obtaining a rating from one of the big three international credit rating agencies likely to be approved by the Reserve Bank. Industry commentators predict the requirement will force many small firms to either merge or wind down their operations.
Cullen said legislation to implement mandatory ratings would be introduced into Parliament this year but much of the new regulations would not take effect until after 2009.
"This is not intended to be a 'quick fix' solution and it will not solve all the problems that some finance companies are facing," said Cullen.
"But there is nothing to prevent deposit-takers obtaining a credit rating now, which may well be a desirable course of action."
Only about half a dozen of the approximately 70 finance companies operating in New Zealand have a rating from one of the big three agencies, Standard & Poor's, Fitch and Moody's.
Cullen said the Government was committed to working with the private sector to increase public understanding of credit ratings and non-bank deposit-takers' disclosure statements.
Securities Commission recommendations that will beef up trustees' powers to monitor finance companies' health have been accepted by Cabinet and new regulations are being drafted. They are likely to take effect within the next two or three weeks.
Firms under $10m won't need ratingAdam BennettQuoteBox1: ... there is nothing to prevent deposit-takers obtaining a credit rating now, which may well be a desirable course of action. Finance MinisterMichael CullenCaption1: Small finance companies and other non-bank deposit-takers with total assets of less than $10 million will not be required to obtain a credit rating under new regulations for the sector, Finance Minister Michael Cullen said yesterday.
As previously announced by Commerce Minister Lianne Dalziel, Cullen confirmed that all deposit-takers including finance companies, building societies and credit unions will have to be registered with the Reserve Bank, which will also oversee their compliance with minimum prudential requirements.
While most will require a credit rating from an agency approved by the Reserve Bank, Cullen said those with total assets under $10 million would not, "but will have to disclose prominently that they are unrated".
All of the nine finance companies that have collapsed over the past 16 months have had total assets in excess of this figure.Much of the opposition to the introduction of mandatory credit ratings for finance companies has focused on the expense of obtaining a rating from one of the big three international credit rating agencies likely to be approved by the Reserve Bank. Industry commentators predict the requirement will force many small firms to either merge or wind down their operations.
Cullen said legislation to implement mandatory ratings would be introduced into Parliament this year but much of the new regulations would not take effect until after 2009.
"This is not intended to be a 'quick fix' solution and it will not solve all the problems that some finance companies are facing," said Cullen."But there is nothing to prevent deposit-takers obtaining a credit rating now, which may well be a desirable course of action.
"Only about half a dozen of the approximately 70 finance companies operating in New Zealand have a rating from one of the big three agencies, Standard & Poor's, Fitch and Moody's.Cullen said the Government was committed to working with the private sector to increase public understanding of credit ratings and non-bank deposit-takers' disclosure statements.Securities Commission recommendations that will beef up trustees' powers to monitor finance companies' health have been accepted by Cabinet and new regulations are being drafted.
They are likely to take effect within the next two or three weeks.
