Non-bank lenders lift profit 10% in 2017
New Zealand's non-bank lenders lifted annual profits 10 percent in the 2017 financial year as demand for credit persisted, buoyed by record sales of new cars, KPMG's annual sector update shows.
Eighteen of the 25 participants in the KPMG non-bank financial institutions performance survey posted increased earnings in 2017, generating a total net profit of $216.7 million, up from $196.6 million a year earlier. Total assets grew 12 percent to $10.96 billion, with lending boosted by the nation's strong demand for new vehicles and several non-bank institutions testing the waters in the mortgage space as the major banks become more reticent in some of their credit criteria.
"The banks have been lending in a more cautious manner as a result of LVR restrictions on mortgage lending, their voluntary non-recognition of offshore income in repayment calculations and funding pressures due to higher regulatory capital requirements affecting the big four Australian-owned banks," KPMG head of banking and finance John Kensington said in a statement. "This has meant that most non-bank lenders have been able to capitalise on the flow of business the banks have said 'no' to that in the past they might have accepted."
New Zealand's non-bank lenders account for a fraction of the nation's lending, which is dominated by the big four Australian-owned banks, and have struggled to gain much traction since the sector collapsed a decade ago in the lead-up to the global financial crisis.
More recently, peer-to-peer lending platforms have emerged, although recent Financial Markets Authority figures show credit through those online portals was sitting at $259.6 million as at June 30.
Kensington said the scale of wholesale funding through the P2P platforms, such as Heartland Bank's lending through Harmoney Corp, appeared to indicate they were acting as brokers rather than connecting peers to lend and borrow.
"The P2P model was predicated on two things - a tech-savvy speedy front-end, an area they have delivered on, and a sharing of the margin," Kensington said. "The jury is still out on the second aspect and whether it is being achieved."
Today's report shows Australian-owned auto-lender Branded Financial Services generated the biggest increase in profit, more than doubling earnings to $1 million, followed by a 46 percent gain to $5.6 million for Nissan Financial Services. NZAX-listed Geneva Finance posted the third biggest increase, with profit rising 45 percent to $5.1 million.
Motor vehicle lending has basked in New Zealand's record new car sales in recent years on an expanding population, strong tourism stoking demand for rentals, and an attractive kiwi dollar making imports cheaper.
ANZ Bank New Zealand-owned UDC Finance remained the biggest non-bank lender with $2.94 billion of gross loans, followed by Toyota Finance New Zealand with $854.2 million, Mercedes Benz Financial Services New Zealand at $608.7 million and Motor Trade Finance at $607 million.
The report showed non-bank lenders' credit quality deteriorated in the year, with 15 of the 25 firms registering an increase in impaired assets, rising to $31.3 million from $22.9 million a year earlier. However, that lagged behind the increased credit growth, and the ratio of impaired assets to gross loans rose 6 basis points to 0.36 percent.
"Credit quality in the sector is robust, with impairment losses and provisioning appearing to be close to cyclical lows in spite of the generally strong demand for loans," Kensington said.
The report showed net interest margins shrank 40 basis points in the year to 5.58 percent, and respondents anticipated greater competition to attract retail deposits while vying for lending customers at the same time.
"A competitive lending market seems to have reigned in the ability of non-bank lenders to pass on the funding rate increase to their customers," Kensington said. "Margins seem to be pressed at both ends