Credit unions and finance companies' profit dropped 8% because of Covid-19 - report

10:13 am on 16 December 2020

The non-bank finance sector has weathered the Covid-19 storm is in relatively good shape, despite a drop in profits and a rise in bad debts.

Photo: Creative Commons / Pixabay / 3dman_eu

A survey by the business advisory firm KPMG, covering credit unions, building societies and finance companies, showed overall net profit dropped 8 percent to almost $300 million dollars.

The head of banking and finance at KPMG John Kensington said the sector did not receive any direct assistance as retail banks had through various government and Reserve Bank programmes, but they had benefited indirectly as the main banks passed on low interest rates and maintained lines of credit.

"It may appear unusual that they were not covered by some form of government support, but that's probably because when looked at numerically it is a small sector, at just 3-4 percent of total lending nationally."

"However, what we need to remember about that lending is that the sector touches one million plus customers nationwide and it is specialist lending - the type of lending banks either can't or won't offer."

He said non-banks were mostly affected by a slow down in business and provisions for future bad and doubtful debts.

Net profit after tax fell by $26 million to $299.6m. The main factor was $48.1m increase in impaired asset, which hit $163.8m because of weaker asset quality because of uncertainty.

"It's rather counter-intuitive to have your past dues and impaired assets as good as ever but have that large provisioning, but it's a reflection of the current environment and the forward-looking view that models take," Kensington said.

Of the 25 companies covered by the report, 13 had higher profits, with 12 reporting lower profits.

Only one company had a loss, CreditUniuon Baywide, which was put down to the remaining costs of recent amalgamation and restructuring.