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Finance edges up

Posted on 17 December, 2013

Competition between banks and finance companies could become stronger, according to a new report by KPMG. The Financial Institutions Performance Survey-Non Banks full-year report states asset growth in the non-bank sector, with competition between banks on rates being a challenge for finance companies. Nevertheless, John Kensington, KPMG’s head of financial services, says the loan-to-value (LVR) regulations offer opportunities and risks to the non-banking sector – as previously reported by Autofile following an interview with UDC’s Don Atkinson. “Non-bank lenders aren’t subject to the LVR restrictions on home lending, so the opportunity exists to write business in a part of the sector without competing with banks, which comes at a time when consumer confidence is rising.” To offset this, the banking sector could move into new product areas that compete directly with finance companies. “One view is that with banks being limited by the amount they can lend in the high LVR mortgage area, they may try to bolster lending books in other areas,” says Kensington. “Another view is they may leave mortgages for strictly home lending and not encourage borrowers to use headroom for other assets. The full impact of the LVR rules remains to be seen, but we expect some trends to emerge by the time we issue our bank survey in March 2014.” Meanwhile, the report shows Kiwi finance companies weathered the storm from the global financial crisis. “The 23 institutions we surveyed have been successful in adapting business to the post-crisis environment,” says Kensington. “With the struggles of the global financial crisis behind them, focus has shifted to managing margins and growth in light of a competitive lending environment that’s starting to show some new opportunities.” Another key finding of the survey was the challenge of increased regulation in the sector. The Anti-Money Laundering and Countering Financing of Terrorism Act came into full effect on June 30. “The cost of compliance with this legislation was a common theme among executives we interviewed. They were incurring significant costs around hiring specialist advice, updating information systems and training staff in new customer identification requirements. “While participants acknowledged the importance of the legislation, it doesn’t provide any opportunity to generate extra business or profit.”