Profits down 8% in nonbanking sector

AUCKLAND: Profits in the nonbanking sector fell by nearly 8% to just shy of $300 million in the September year, driven largely by a rise in impairment provisions.

KPMG’s nonbank sector report has revealed some of the impact of Covid19 on the sector which includes credit unions, nonbank deposit takers, building societies and finance companies.

KPMG head of banking and finance John Kensington said while the banking sector had received tools from the Government and regulators to provide care and assistance to customers, the nonbank sector had not so far.

Despite that the sector had committed to providing their customers with the same level of relief and assistance as banks, via the strength of their own balance sheets, he said.

‘‘It may appear unusual that they were not covered by some form of government support, but that’s probably because when looked at numerically it is a small sector, at just 34% of total lending nationally.

‘‘However, what we need to remember about that lending is that the sector touches one million plus customers nationwide and it is specialist lending — the type of lending banks either can’t or won’t offer.’’

While the financial impact had yet to be seen for those businesses with a December or March balance date, it was a different story for those with a June or September financial year with a more severe impact from provisioning.

‘‘What we will see in the future is still very difficult to forecast, but it is unlikely that the impact on the nonbank sector is over yet,’’ Mr Kensington said.

Net profit after tax fell by $26 million to $299.6 million. The main contributor to the fall was a $48.06 million increase in impaired asset expenses, which grew to $163.85 million due to asset quality decreasing as a result of uncertainty.

Of the 25 companies covered by the report, 13 saw a rise in profits but only three of those had balance dates after the Level 4 lockdown.

Twelve of the 25 reported falling net profits. Ricoh reported the largest drop of 82%, followed by First Credit Union, which saw a drop of 73.5%. Despite the drop, both were still profitable.

Credit Union Baywide was the only company in the sector to make a loss.

Toyota Finance had the biggest dollar increase in profits with an increase of $5.32 million to $25.75 million, followed by First Mortgage Trust rising $5.04 million to $44.4 million.

FlexiGroup had the biggest dollar value drop in profit, falling $18.75 million to $23.22 million, followed by UDC, which dropped $7.27 million to $62.4 million.

Profits among the finance companies seemed to have been hit the hardest, according to KPMG, although some of this was attributed to the timing of the financial results.

Total assets in the sector grew only 3.95% — which was low compared to the past three years, which recorded growth of 12.2%in 2017, 14.7% in 2018 and 9.4% in 2019.

Mr Kensington said that was a relatively strong result, given the challenging operating environment.

‘‘The biggest impact you see in these financial statements is the increase in provisioning and impaired asset expense, driven by forward looking provisioning models amid continued uncertainty.

‘‘It’s rather counterintuitive to have your past dues and impaired assets as good as ever but have that large provisioning, but it’s a reflection of the current environment and the forwardlooking view that models take.’’ — The New Zealand Herald