KEY POINTS:
Hundreds of millions of dollars a week are likely to be moving from finance companies into banks, estimates Kiwibank chief executive Sam Knowles.
It was announced yesterday that Nelson-based LDC Finance has gone into receivership, making it the fourth finance company to collapse in a fortnight and the eighth in 16 months.
Today Mr Knowles said the main impact on Kiwibank of the shakeout in the finance company sector had been a larger flow of funds seeking the safe haven of a bank.
It was always hard to quantify the flows "but we're certainly talking tens of millions of dollars a week in additions, and we've had our biggest weeks ever in inflows", he said.
"We're obviously not the only recipients of that. I would think it will be in the hundreds of millions of dollars a week that are flowing from finance companies to banks."
A flight to quality from finance companies to banks had been going on for the past year.
"The kind of people who are taking their money out of finance companies are not going to put them back into finance companies for, I would say, another generation," Mr Knowles said.
For some finance companies the outlook was "clearly very dire", and he expected to see more failures.
"But there are some very good finance companies in there. They set their funding structures up right and I'm sure they will trade through."
Kiwibank had no exposure to finance companies, he said.
The effects of the finance company shakeout on Kiwibank were positive in terms of having more opportunities to sell to a wider range of customers and being able more comfortably to fully finance any additional lending without having to look to wholesale markets.
While Kiwibank was always on the lookout for opportunities, because it was generally only interested in acquiring lower risk assets not that many were coming available from finance companies.
Mr Knowles made the comments today while presenting Kiwibank's annual results, with the state-owned bank's after-tax profit for the year to June 30 rising 61 per cent to $25.5 million.
- NZPA
