Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


FundSource Launches Finance Company Research


FundSource Launches Finance Company Research

FundSource is pleased to announce the launch of FinanceWatch, an initiative that analyses and reports on finance company debentures to assist financial advisers in making robust, diligent and defensible debenture investment decisions.

FinanceWatch has been formed to answer advisers’ calls for increased transparency and readily available comparisons of the key financial characteristics of finance companies. The research comes at a time when finance company investments are likely to once again come under the microscope following the Reserve Bank’s decision to raise the official interest rate to 6.75%. This reiterates FundSource’s view that NZ is nearing a peak in the business cycle with tougher economic conditions imminent.

Key Initial Findings

Notable are the wide ranging findings across many of the key performance figures in the FundSource Research. A few of the more interesting findings are highlighted below.

Profitability

It is of no dispute that the finance company industry has been an extremely profitable industry for the vast majority of participants in recent years. The average net profit margin for companies three years or older is 15%, with a range of 34.73% down to -4.14%. Interest margins, the difference between what money is sourced and loaned out at, ranges from 29.66% to 3.3%, with an average of 7%.

Capitalisation

The primary risk to a debenture holder is the potential for the company to become insolvent - as the only security provided is over the assets of the company. Therefore the level of equity within a finance company represents a buffer to debenture investors against any loss that the loan portfolio may suffer. Equity within a finance company should be at a sufficient level so as to absorb any foreseeable or unforeseeable shocks – such as defaults on loans. If equity is insufficient to cover any loan default the loss may be born by the investor.

FinanceWatch has found that New Zealand finance companies are highly leveraged investments with some having adequate to inadequate levels of equity to cover the future risk of default. While consumer lenders have average equity of 13.8%, they range from having 32.81% equity down to just 4.37%.

Property lenders, who across the board have much larger loans as is demonstrated below, average just 9.7% equity and range from 18.54% equity to just 0.90%.

Asset quality

Many finance companies, especially those that lend on property, have been found to have concentration (lack of diversity) within their loan book, where a default by a single loan, or in a single industry has the potential to expose investors to risk not compensated for.

For example, property finance companies average single loan size - on average - is near 30% of their entire equity, while their largest single loan on average is 171.3% of the entire equity of the company. Conversely, consumer lenders average loan size is typically 1.2% of equity, and their largest exposures average 50% of equity.

In general, non-performing loans and bad debts have been declining over recent years, largely enjoying favorable economic conditions. Companies ranged from having no non-performing loans to some with over 10% of their assets non-performing. The challenge for finance companies will be to cater for and manage escalating non-performing loans as the environment turns toward a less favourable economic environment.

Asset/Liability Management

A theme that has emerged from our survey is the level of liabilities outstanding in the industry that are not matched by assets. While on average around 30% of liabilities are not matched by assets companies ranged from some with over 90% of liabilities not matched by assets while others enjoy an excess of assets maturing in the coming year or so over their liabilities.

While any such mis-matches may be made up by issue of debentures the profitability of such strategies will be challenged by any slowdown in the economy.

FinanceWatch Research

The research consists of individual and specific profiles of the top 30 finance companies by size, where key risk assessment factors are disclosed. In addition, FundSource has produced a comprehensive report and guide on the finance company industry, aggregating the findings and providing risk assessment guidance. Finance companies that lend the majority of their loan book (70%) to property are treated separately to consumer and commercial lenders. Key finance company analysis includes:

Profitability analysis Asset quality analysis Capitalisation analysis Asset/liability management analysis

The service is open to all financial advisers, brokers, accountants, and trustees. The general public will only be able to access this research via their local financial adviser, as FundSource has found the risks associated with investing in finance companies to be multi-dimensional and complex in nature.

FinanceWatch Methodology

FundSource has profiled 30 individual finance companies by way of direct contact and a comprehensive survey. During the process, finance companies have been asked to provide a combination of public and non-public data, with 85% of finance companies providing the non-public data.

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

I Sing The Highway Electric: Charge Net NZ To Connect New Zealand

BMW is turning Middle Earth electric after today announcing a substantial contribution to the charging network Charge Net NZ. This landmark partnership will enable Kiwis to drive their electric vehicles (EVs) right across New Zealand through the installation of a fast charging highway stretching from Kaitaia to Invercargill. More>>

ALSO:

Watch This Space: Mahia Rocket Lab Launch Site Officially Opened

Economic Development Minster Steven Joyce today opened New Zealand’s first orbital launch site, Rocket Lab Launch Complex 1, on the Mahia Peninsula on the North Island’s east coast. More>>

Earlier:

Marketing Rocks!
Ig Nobel Award Winners Assess The Personality Of Rocks

A Massey University marketing lecturer has received the 2016 Ig Nobel Prize for economics for a research project that asked university students to describe the “brand personalities” of three rocks. More>>

ALSO:

Nurofen Promotion: Reckitt Benckiser To Plead Guilty To Misleading Ads

Reckitt Benckiser (New Zealand) intends to plead guilty to charges of misleading consumers over the way it promoted a range of Nurofen products, the Commerce Commission says. More>>

ALSO:

Half A Billion Accounts, Including Xtra: Yahoo Confirms Huge Data Breach

The account information may have included names, email addresses, telephone numbers, dates of birth, hashed passwords (the vast majority with bcrypt) and, in some cases, encrypted or unencrypted security questions and answers. More>>

ALSO:

Rural Branches: Westpac To Close 19 Branches, ANZ Looks At 7

Westpac confirms it will close nineteen branches across the country; ANZ closes its Ngaruawahia branch and is consulting on plans to close six more branches; The bank workers union says many of its members are nervous about their futures and asking ... More>>

Interest Rates: RBNZ's Wheeler Keeps OCR At 2%

Reserve Bank governor Graeme Wheeler kept the official cash rate at 2 percent and said more easing will be needed to get inflation back within the target band. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news