KEY POINTS:
While banks on the other side of the world are dropping like flies, Southland Building Society yesterday gained its banking licence and is planning on getting bigger.
Chief executive Ross Smith said the 150-year-old Invercargill-based building society had been considering gaining registration to become a bank for a number of years.
"We believe now is the right time. Our decision had little to do with the current world financial crisis but was more due to the proposed changes to the non-bank regulatory regime and issues around a number of financial company failures.
"We don't believe the risks will be any worse at all because our business philosophy will stay the same."
While SBS had gained a banking licence, it would remain a building society to protect its ownership structure.
"We believe our mutuality differentiates us in the market as we're owned by our customers."
Smith didn't believe the SBS was exposed to the credit crunch and associated economic fallout in the same way its big bank rivals were.
SBS probably had the highest level of retail deposit funding of any registered bank in the country, buffering it from the credit crisis which has sent funding costs soaring for its big Australian-owned rivals.
"We will certainly be affected by an economic downturn, the good news is that we're mainly focused in the south, and our exposure to Auckland in particular is not high at all."
Smith said SBS already had sufficient capital to meet Reserve Bank requirements but will look to raise additional capital within the next 12 months to maintain ratios "prudent in the current environment".
Last month legislation was passed extending the Reserve Bank's responsibilities to the supervision of non-bank deposit takers, including building societies, credit unions and finance companies. Under the new regime non-bank deposit takers will have to obtain credit ratings and meet tougher prudential requirements.
Given that international ratings agencies tend to recognise the benefits of being a sizeable organisation, the requirement for a rating has created expectations of a period of consolidation for the sector.
SBS already has a BBB investment grade rating from Fitch Ratings and Smith yesterday confirmed that as the biggest building society in the country it expected to play a central part in that consolidation.
"There are a number of building societies we believe may find themselves under some pressure with the change in regulation and the need to get credit ratings. We expect they'll be open to discussions."
The SBS announcement comes less than a week after rural services company and Marac Finance owner Pyne Gould Corporation said it planned to seek a banking licence.
SBS FIGURES
* Total assets $2.43 billion
* Deposits of $1.85 billion
* Members' equity of $152 million
