Another finance company under scrutiny

Canterbury finance company Provincial Finance has withdrawn its prospectus and is declining new business as it responds to a hole in its balance sheet.

Chief executive David Lyall told the Dominion Post Provincial had been forced to suspend dealing in its fixed interest debentures, which offer rates of more than 9 per cent.

From today it will not write further loans in its Auckland used-car business, and is withdrawing from that market indefinitely, the paper reported.

Provincial is the second finance company in a week to face credit problems. Last week Auckland-based lender, National Finance 2000, was put in the hands of receivers after failing to meet asset-to-debt ratios.

The company, run by used car dealer Allan Ludlow, owes around 2000 largely Mum and Dad investors more than $25 million.

Accounting firm KPMG recently warned of a pending shake-out in the finance lending industry in its annual survey of financial institutions.

KPMG said the slowing economy and slowing property market was likely to lead to loan defaults, with new entrants -- some operating on margins of less than 4 per cent -- at the greatest risk in an economic downturn.

Provincial is expected to trade its way out of its current problems, which have been created amid massive growth in its loan book -- from $28 million in 2001 to $295 million in 2005.

Mr Lyall said Provincial would suspend business until June to give auditors a chance to examine its books.

He said Provincial's problems, like National Finance 2000's, were created by the faltering used car market. Provincial differed, however, in that it had very good cashflow.

"We have $20-odd million on deposit. We've got a lot of cash coming in every month," Mr Lyall told the paper.

"We can certainly sit there and pay our investors for some time."

- NZPA