In 2009 the non-bank sector was faced with the most difficult market conditions for many years and for some probably the most difficult challenges ever faced. The benign conditions of the previous decade were long gone.
The starting point was the funding and liquidity pressures of the second half of 2008 that for many were ameliorated by entry into the Retail Deposit Guarantee Scheme.
However simultaneously the recession really bit and the last quarter of 2008 resulted in the evaporation of confidence in most sectors of the economy.
Accordingly the scene was set for the year: growing credit quality issues, margin pressure from an increasing cost of funds and a significant reduction in lending activity. These elements feature strongly in the non-banks' financial results which are discussed in the Sector Performance section of this document.
While there were less finance company failures in 2009 than there were in the two preceding years, the continuing falls in the property market, the lack of buyers in the market and lack of replacement finance for property developers has led to a raft of bad profit results, and associated negative publicity, in the finance company sector.
This has caused consternation to many in the non-bank sector and particularly those without an exposure to commercial or development property.
The combination of the very tough economic conditions, competitive pressures and the progressive roll-out of the new regulatory regime for non-banks have put a series of hurdles in the path of the sector, particularly the finance company sector.
Our survey looks at the following hurdles set in the path of the non-bank sector:
- the economy
- increased loan losses: the "new normal"
- increased competition impacting lending and funding margins
- increased cost base including Deposit Guarantee Scheme
- funding and liquidity challenge
- obtaining a satisfactory credit rating
- increased regulation will require higher levels of capital and more resources.
We expect some entities will not be able to clear all these hurdles and others will look at the total number of hurdles and decide this is not a race they wish to run.
If you would like further information please feel free to call me or your KPMG contact to discuss further.
Head of Financial Services
Ph: +64 4 816 4514