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NZ credit ratings flow in as non-bank deposit takers gear up for regulation

Thursday 18th February 2010

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The stream of new credit ratings has increased this week as companies that take deposits from retail customers gear up for central bank regulation that requires them to be rated.

From next month, all non-bank deposits takers require a credit rating from either Standard & Poor’s, Moody’s Investors Service or Fitch Ratings to comply with new Reserve Bank prudential policies that aim to shore up the financial sector and prevent another collapse in the finance company sector. PGG Wrightson Finance, the finance arm of rural services provider PPG Wrightson, was assigned a BB rating with a stable outlook from S&P.

The company’s exposure to the risky agriculture sector and high counterparty concentration was offset by “the company's good brand in New Zealand's rural finance services market, stemming from the company's national footprint and access to its parent's broad distribution platform and large rural client base,” analyst Gavin Gunning said.

“Wrightson's recent recapitalisation and refocused strategy should enhance its capability to support PWF if needed,” he said in his report.

Fisher & Paykel Finance, which provides consumer finance for Fisher & Paykel Appliances, was also rated BB with a stable outlook by S&P, reflecting its “exposure to the cyclical consumer segment, its reliance on continuing banker confidence and support, and our view of its parent,” Gunning said in a separate report.

“These factors are offset by F&PFL’s good market position in the New Zealand consumer finance segment, its diversified customer base, and its good risk-management capabilities,” he said.

Hawke’s Bay-based Manchester Unity Credit Union was rated B+ with a stable outlook by S&P, reflecting its “very small capital base by international standards, and the below-peer capital ratios, at-call deposit base, and key-person risk associated with the small size of its business operations.”

Still, S&P’s Gunning said the credit union had a very good credit-loss history and low appetite for risk, along with a very good asset quality. Accounting firm KPMG expects this year to be one of consolidation for finance companies, which make up the bulk of non-bank deposit takers, after a dismal 2009 when the sector posted a loss of some $549 million compared to a profit of $163 million in 2008.

The authors of its 2009 Financial Institutions Performance Survey – Non-banks Review, which surveyed 31 finance companies, said they “understand that a range of merger discussions are currently occurring across a number of entities in both the finance and savings sector.”

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