Minnow lender Asset Finance warned over related party lending

Asset Finance, the minnow lender which was temporarily stopped from seeking new investment last year over the representation of a related party loan, has been rapped over the knuckles by the Reserve Bank for breaching the cap on related party lending.

The central bank issued a warning to Whakatane-based Asset Finance for exceeding the 15 percent limit on related party loans that non-bank deposit takers can make as a proportion of total credit exposures, according to a statement on the Reserve Bank website.

The government ordered restrictions on related party lending by second-tier lenders due to the major role they played in the collapse of the finance company sector through the second half of the last decade.

"The requirements that are now in place are vitally important in terms of limiting the harm that can arise from such transactions," the Reserve Bank notice says. "While such harm has not eventuated in the case of Asset Finance Limited, related party exposures can be detrimental to the interests of investors."

An RBNZ spokeswoman told BusinessDesk the issue appears to have been resolved and the "Reserve Bank has no reason to believe Asset Finance Limited is not compliant with the legal requirements concerning related party exposures".

Asset Finance had almost $463,000 in related party loans as at September 30, or 11 percent of share capital at the time. Non-bank deposit takers have to keep related party lending below 15 percent of share capital minus intangible assets and future tax benefits.

A related party loan was at the heart of a Financial Markets Authority order which prevented Asset Finance from taking new deposits between April 13 and May 4 last year.

The FMA believed Asset Finance's offer documents were likely to be misleading over a $350,000 related party loan. The lender disagreed but decided it was cheaper to comply.

Asset Finance was one of the few finance companies to survive the sector's collapse, pulling out of the government's retail deposit guarantee scheme before it was extended. It typically pays annual interest of 6 percent to 9.5 percent on deposits, with standard lending charges between 14 percent and 30 percent.

It had about $13.5 million in loans and advances as at September 30 and owed about $13 million in debenture stock.

(BusinessDesk)