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Up to $1 bill lost in finance companies: RBNZ

Rob Hosking

Wednesday 7th May 2008

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Up to $1 billion could have been lost in finance company failures, says the Reserve Bank.

The central bank has collated estimates from the receivers of the 13 failed finance companies for its latest Financial Stability Report which says the direct losses to investors ranges between $625 million at the most optimistic to $1.060 billion at the worst.

That is between 40% and 70% of the total exposure, the report says.

It also highlights the degree to which investors are differentiating between firms in the non-banking finance sector.

The finance companies make up about 44% of the sector, with credit unions, building societies, and PSIS making up the rest.

Those other types of non-bank institutions are still showing a net inflow of funds, the report says. The rate has slowed slightly but this is partly due to a slowing economy.

Finance companies, however, have seen "a sustained outflow".

However the bank says investors are starting to discern differences between finance companies.

"Investors appear to be differentiating between finance companies with a solid asset quality and those with loans of a more uncertain quality. Those with lower quality assets portfolios are struggling to access new funding facilities and are having to sell assets to remain liquid.

"Meanwhile better quality institutions are seeking to differentiate themselves through credit ratings and to protect themselves from liquidity through increases in cash holdings, committed facilities and other wholesale funding initiatives, albeit at a greater cost."

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