Going it alone… and making great progress

Going it alone… and making great progress

In September last year Asset Finance made the decision to voluntarily withdraw from the Government’s Deposit Guarantee Scheme and it is finding that its exit from the scheme (in November of that year) has not affected its ability to attract new investors. In fact, Asset Finance is finding it easier to do this, thanks partly to its small size but also the greater clarity it can give its depositors around the investments it offers.

Meanwhile, recent media reports have touched on how the guarantee scheme is seen as being a major risk to those companies operating within the non-bank deposit taking sector, suggesting that those most vulnerable to liquidity and refinancing risks are those finance companies not covered by the scheme.

Clive George, Managing Director of Asset Finance, says “Offering deposits on a non-guaranteed basis actually makes perfect sense for a company such as ours. We don’t need the Government’s guarantee because we have fantastic liquidity and great depositor support”.

He goes on to say, “Having a small but manageable loan book that generates high cash flow has really helped us to survive the current shake-up of the non-bank deposit taking sector. We are predominantly consumer lenders and so we have good steady cash flow, not interest-compounding loans”.

As at the end of March 2010, investors had approximately $21.5m deposited with Asset Finance. Of that amount, George says more than 70% matures after the expiry of the current scheme in October this year. He also says that they have no significant concentration of deposits maturing during the next seven months in the lead up to this.

Having joined shortly after its inception in October 2008, Asset Finance withdrew from the current scheme and made the decision not to opt into the Government’s Extended Scheme in September of last year, recognising the need to develop alternative funding sources.

“We’re already tackling the big issue, which is securing funding for a world post the existence of these guarantees. While others need these schemes to survive, we are doing just fine without them. For the larger players within the industry, the guarantees have offered them a lifeline, allowing them to secure short-term funding to see them through the immediate payments that are falling due”.

“However, ultimately they’ll have to move to offering investments without a guarantee. At Asset Finance we felt we were already in that position so it made perfect sense for us to exit the scheme. We have a good business model and that makes us a good candidate for going it alone”.

“The additional costs involved also meant it didn’t make sense for us to remain in the current scheme or to participate in the extended scheme. Instead, we are able to attract a better level of business by passing on the additional premium to investors”.

George goes on to evidence some of the success they have been having since their withdrawal. “Since we exited the scheme, we’ve had 113 new depositors, amounting to deposits of around $2.4m. The weighted average term of these deposits is around 30 months. This is well beyond the expiry of both the existing scheme and the extended scheme”.

George points out that Asset Finance has had these successes at the same time as having to adhere to stricter capital adequacy requirements and the more stringent oversight and regulation of the sector. “That’s no mean feat. The fact we are doing well means our investors share that confidence and are happy to continue to support us even without the Government’s guarantee. That can only be a good thing!”

Clive George finishes by saying their decision to withdraw from the scheme has helped them to communicate a clearer message to their investors. “It has certainly helped us to bring in new business. Depositors have better transparency over our strategy and feel they are able to make better-informed decisions about the investments they are making”.

Clive George is Managing Director of Asset Finance, a consumer and business finance company operating in the non-bank deposit taking sector, which has been lending to New Zealanders for over 10 years. During this time, Asset Finance has been grown steadily and today has assets approaching $25m and a 15-strong branch network. Asset Finance strives to fulfil clients’ financial needs and goals in a way that recognises individual circumstances by offering simple and flexible service, with speed and excellence.

ENDS

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