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Finance company sector returns to profit - KPMG

Wednesday 22nd December 2010

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The finance company sector has recovered remarkably this year after a swag of receiverships and credit problems, KPMG said in a report on non-bank financial institutions.

Finance companies in total have moved from an overall after-tax net deficit of $143 million in 2009, to a strong profit of $162 million this year.

Remaining finance companies were a combination of internationally supported entities or the strongest of the other companies which had now returned to a more normal, albeit cautious, level of business.

The year's best performers included UDC Finance, GE Money, Fuji Xerox Finance and Custom Fleet NZ, according to the report.

The past three years had been a period of fundamental change and rationalisation across the sector, sparked by the collapse of property development finance companies, domestic recession and the effects of the global financial crisis.

The main factors behind the return to profitability included higher interest rate margins, reining in impaired asset expenses, and reduced market interest rates compared with 2009.

"The receivership of South Cantebury Finance on 31 August 2010, in particular, has been an important event from which the sector can now move forward."

Bad and doubtful debts, and to an extent damage to reputations, had hobbled the sector for much of the previous two years.

However, some problems persisted, including past due assets and gross impaired assets steadily increasing.

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

The average impairment expense ratio across the sector had risen to 2.28% from 2.09% last year.

The survey covered financial institutions with annual balance dates between October 1, 2009 and September 30, 2010. The number of finance companies surveyed fell to 16 from 31 the previous year.

KPMG will also release a report on registered banks in April 2011.



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