Surviving finance companies looking healthier: report

Photo / Brett Phibbs

New Zealand's non-bank finance companies have recovered significantly after the collapse in the property sector, the domestic recession and the global financial crisis savaged the industry and saw heavyweights fall, according to KPMG .

In a review of 2010, the accounting firm found finance companies collectively turned an after tax profit of $162 million, up from a $143 million loss in the previous year, led by UDC Finance, Custom Fleet NZ, Fuji Xerox Finance and GE Money.

These companies managed to sidestep the collapse in property lending which culled a number of big name lenders including Allied Nationwide Finance, North South Finance, Equitable Mortgages, St Laurence, Strategic Finance and South Canterbury Finance, once New Zealand's biggest finance company.

The sector was now "able to look forward with a degree of clarity as to what will be required to operate a sustainable business in the future," the report said.

"The last three years have been a period of fundamental change and rationalisation across the whole sector."

The report found the primary drivers of profitability in the year included increased interest rate margins, which rose 198 basis points, increased control over impaired asset expenses, and the benefit of reduced market interest rates.

Total assets in the sector fell 5.1 per cent, which KPMG said reflected the slowing economy and a constrained lending environment.

KPMG said the legacy asset quality issue will continue to hang over the market, with costs relating to past due and impaired assets continuing to creep up steadily.

"We expect this trend to continue into the foreseeable future until such time as impaired assets are recovered or written off,"
the report said.

The sector is also expected to come under increased pressure from the expiry of the Crown Retail Deposit Guarantee Scheme and regulatory changes requiring tighter liquidity controls.

KPMG said the changes will make it tougher for smaller companies to compete, which should trigger further mergers and consolidations in the sector.