Despite the fall in sector profitability, there has also a noticeably more positive tone among specialist lenders this year. File photo Photo: 123RF
Profits for non-bank finance groups have taken a tumble for a second consecutive year, driven by higher costs and an increase in bad debts, according to a new report.
Business consultancy KPMG's annual survey of 26 finance companies, building societies and credit unions - now described as the specialist lending sector - showed combined profits fell 25 percent to $243 million.
Total assets increased by 7 percent to $19.3 billion, as increased lending and higher interest rates lifted income.
But that was offset by the higher cost of money, increased overheads, and a significant lift in the amount set aside for bad and doubtful debts.
KPMG head of banking John Kensington said despite the fall in sector profitability, there was a noticeably more positive tone this year.
"A combination of a change in government to one that is perceived as and starting to show that it is more business friendly, interest rates
starting to drop, inflation coming under control and changes to the CCCFA (Credit Contracts and Consumer Finance Act) have all been little rays of sunshine."
Kensington said the sector was valuable, serving a range customers, which the main retail banks either ignored or serviced poorly, but it recognised times were changing and it needed to sell itself better.
"The role that it plays in providing alternative types of finance to 1.7 million New Zealanders is not to be underestimated."
Fair treatment
Kensington said amid talk of forcing greater competition to the major banks, the specialist lenders needed fairer treatment so that the current regulatory system did not disadvantage them.
"They'd like to see some proportionality in the regulation, so it wasn't a rule that one size fits all, because it doesn't for them."
"So they could get access to some slightly cheaper funding because they'll argue that what they're doing is just as vital a role."
"Top of mind here was access to an ESAS or ESAS lite account and the ability to access funding more comparable to the levels achieved by banks," Kensington said.
ESAS is the RBNZ supervised system for the immediate settlement of inter-bank financial transactions, which is open to 12 banks and five large non-bank institutions.
The government has told the Reserve Bank to look at ways of making regulations on capital levels and other requirements more appropriate for the size of the various companies.
Kensington said overall if economic and regulatory conditions improved then the small players would prosper.
Sign up for Ngā Pitopito Kōrero, a daily newsletter curated by our editors and delivered straight to your inbox every weekday.