Tepid appetite for further consolidation in non-bank sector, KPMG says

Thursday 15th December 2011

A leaner non-bank financial sector is unlikely to have the appetite for more consolidation after a year of mergers, acquisitions and failures, according to accounting firm KPMG.

The number of finance companies in New Zealand fell to 13 from 16 this year, while savings institutions shrank to 8 from 10, and the survivors aren’t looking for growth for its own sake, KPMG said in its latest Financial Institutions Performance Survey (FIPS) on non-banks.

The sector went through major consolidation through 2008 to 2010 as a slew of failed finance companies purged their numbers, while increased regulatory costs encouraged mergers.

“Having weathered the turbulence of the recent past, they do not want to undermine the stability that the GFC (global financial crisis) threw at them,” KPMG said. “Whilst further acquisition has not been dismissed, there is an appetite for building on their existing core strategies and markets rather than entering new specialist markets that have not been tried and tested successfully.”

During the period, Heartland New Zealand was formed through the merger of Marac Finance and Canterbury and Southern Cross Building Societies, while SBS bought Hastings Building Society. Equitable Mortgages and NZF Money called in receivers, and GMAC Financial Services entered voluntary liquidation.

In November’s financial stability report, the Reserve Bank said the sector is still dealing with the legacy of impaired loans, and the FIPS showed finance companies’ aggregate impaired loans rose $1 million to $203.7 million. Savings institutions’ impaired assets almost doubled to $88.2 million, the bulk of which came in with Heartland’s legacy property loans.

Finance company profitability improved by a third to $200.1 million with fatter interest rate margins of an average 6.29 percent, compared to 5.61 percent in 2010. Still, underling profit only rose to $291.5 million from $285.1 million.

Savings institutions’ earnings crept up to $17 million from $15.7 million, with smaller interest rate margins of 3.51 percent compared to 4.25 percent a year earlier, while underlying profit rose to $25.5 million from $21.2 million.

BusinessDesk.co.nz

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