Slowest lending growth for finance sector since 2010 – KPMG

Loan growth in the non-bank finance sector fell below 1 per cent in 2021 – the lowest growth seen since 2010 when the sector was battling in the aftermath of the global financial crisis, a survey by KPMG has found.

The survey of 26 firms which includes credit unions, finance companies and non-bank deposit takers showed personal and motor vehicle financiers have been the hardest hit by the lockdown this year.

But despite the low loan growth net profits after tax for the sector rose 3.34 per cent or $9.17 million to $292.3m bouncing back from the nearly 8 per cent drop in net profits seen in 2020.

Of those surveyed 18 reported an increase in net profit with Unity Credit Union and Ricoh New Zealand reporting the biggest percentage increase while FlexiGroup had the biggest dollar value increase boosting its profit by $20.07m to $43.29m.

Harmoney Group, which was included in the survey for the first time reported the biggest decrease and was the only participant to record a loss of $25.3m for the period.

But profits among the motor vehicle financing sector were hit the hardest with four out of the nine lenders reporting reductions in net profit.

Lower profits were driven by net interest income falling due to the low-interest-rate environments and non-interest income also declining.

The businesses also cut expenses over the year with operating expenses falling nearly 10 per cent (9.87 per cent) to $891.55m.

Impaired asset expenses also reduced significantly dropping 34.14 per cent ($59m) in 2021 after the 41.51 per cent increase in impaired asset expenses in 2020.

John Kensington, head of banking and finance at KPMG, said the increase in net profits showed the sector had made tough decisions to streamline their businesses and eliminate unnecessary expenses due to uncertainty over what the future might hold.

“At the same time most entities have held on to some degree of provisioning overlay, again due to this uncertainty.”

Kensington said a big worry for the sector was how quickly businesses would be able to get up and running under the traffic light system which came into effect from December 3.

“The question many ask is whether these businesses will be able to sufficiently get up and running again to be in a position to recoup the losses from being locked down for significant periods of time.

“The sector can’t help but hold concern for what may happen to those large number of (inner-city) businesses that had been without foot traffic for over 100 days. And crucially, will they be able to access the cash flow they need to recover?”

Those surveyed were also worried about the unintended consequences of the Credit Contracts and Consumer Finance Act regulations which came into force on December 1.

Many believed it would result in higher costs to the lending process, an increase in loan declines by up to 25 per cent and an increase in loan approval times by 25 to 50 per cent.

Kensington said inevitably higher-tier lenders would have to say no to some of their clients forcing borrowers to seek out lower-tier lenders and increasing their borrowing costs.

“Borrowers who find themselves with no option left in the market may go to unscrupulous and unregulated lenders, where the unintended consequences of CCCFA will be at their most severe.”

Those surveyed were also concerned the lending restrictions were coming in at a time when New Zealand most needed access to funding to help bounce back out of the lockdown.

“Many businesses have been operating in survival mode, particularly those in Auckland, for more than 120 days. They urgently need access to cash flow to get back to full speed as the country opens up and we begin to rebuild.”

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