Non-banks to face tougher times in 2017: KPMG

by NZ Adviser16 Dec 2016
2016 was a year of strong growth for New Zealand finance companies and credit unions, with net profit after tax up 8.17% to $207.78 million and total assets up 17.40% to $11.01 billion.

KPMG’s newly released non-bank Financial Institutions performance survey (FIPS) surveyed 23 of New Zealand’s non-bank financial institutions, and analysed the sector’s performance to 30 September 2016.

KPMG’s head of banking and finance, John Kensington says bolstered consumer confidence has been a key driver of the non-bank sector’s strong profitability.
“We can’t underestimate the impact house price growth, strong employment numbers and low interest rates has had on the non-bank finance sector,” he said.

“It means New Zealanders are feeling richer as well as confident about their wealth security, meaning they are more willing to borrow.

“In addition, during the last year New Zealand’s banking sector has focused on what it does well. They narrowed in on business and mortgage lending and as a result, the finance companies and credit unions had a clear space in the market.”

But Kensington said the New Year will be more challenging for the non-bank sector. 

“In recent months some of the sector have found it more difficult to secure the funds they require and expected rises in offshore wholesale funding costs as well as competition for funds within the local deposits market, will increase this pressure.” 

In 2016, asset growth continues to be fuelled by the increase in the sector’s loan book as gross loans and advances increased from $7.72 billion to $8.77 billion. Avanti Finance, First Mortgage Trust and Nelson Building Society, Nissan Financial Services and UDC Finance registered the largest growth in interest earning assets in the range of $75.55 million to $224.17 million.

To help shore up growth in the comings years, many of the sector’s executives reported innovation and additional product offerings as key areas of focus.

“Last year, most non-bank executives agreed that the growth of peer to peer lending would be a disruptor to the sector. This year we’ve seen that prediction play out and in response to the threat, a number of participants are considering how Fintech partnerships might bring a new product or service to the market.

“For example, in the vehicle financing industry this could mean providing extended warranties, liability insurance or maintenance service contracts. But the potential is much greater.

“We’re also seeing data analytics play a greater role in identifying new business opportunities through the analysis of transactions. In the not too distant future, companies that have yet to embrace this might find themselves lagging behind,” said Kensington.

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