Slowest loan growth in financial sector since 2010 – KPMG

Loan growth in the non-banking financial sector fell below 1% in 2021 – the weakest growth seen since 2010, when the sector was struggling in the aftermath of the global financial crisis, a
investigation by KPMG found.

The survey of 26 companies, which includes credit unions, financial firms and non-bank deposit takers, showed that personal and motor vehicle financiers have been hardest hit by the lockdown this year.

But despite weak loan growth, the sector’s after-tax net profit rose 3.34% or $9.17 million to $292.3 million, rebounding from the nearly 8% drop in net profit. observed in 2020.

Of those surveyed, 18 reported an increase in their net profit, with Unity Credit Union and Ricoh New Zealand reporting the largest percentage increase, while FlexiGroup saw the largest increase in dollar value, increasing its profit by 20 $.07 million to $43.29 million.

Harmoney Group, which was included in the survey for the first time, reported the largest decline and was the only participant to post a loss of $25.3 million for the period.

But earnings in the auto finance sector were the hardest hit, with four of nine lenders reporting cuts in net profit.

Lower earnings were driven by lower net interest income due to low interest rates and lower non-interest income as well.

Businesses also cut spending during the year, with operating expenses falling nearly 10% (9.87%) to $891.55 million.

Impaired asset expenses also decreased significantly, falling 34.14% ($59 million) in 2021 following the 41.51% increase in impaired asset expenses in 2020.

John Kensington, head of banking and finance at KPMG, said the rise in net profit showed the sector had made tough decisions to streamline operations and eliminate unnecessary spending amid uncertainty over what that the future may hold.

“At the same time, most entities have retained some degree of funding overlay, again due to this uncertainty.”

Kensington said a big concern for the sector was how quickly businesses could get up and running under the traffic light system which came into effect on December 3.

“The question many are asking is whether these businesses will be able to get back up and running enough to be able to recoup losses from lockdown for long periods of time.

“The industry can’t help but worry about what might happen to those many (downtown) businesses that had no foot traffic for over 100 days. And most importantly, will they be able to access streams? cash they need to recover?”

Respondents were also concerned about the unintended consequences of regulations on credit agreements and the consumer credit law which came into force on 1 December.

Many believed this would lead to higher costs for the loan process, an increase in loan rejections of up to 25%, and an increase in loan approval times of 25-50%.

Kensington said higher-tier lenders would inevitably have to say no to some of their customers, forcing borrowers to seek out lower-tier lenders and raising their borrowing costs.

“Borrowers who find themselves with no options in the market may turn to unscrupulous and unregulated lenders, where the unintended consequences of the CCCFA will be most severe.”

Respondents were also concerned that the lending restrictions came at a time when New Zealand needed access to finance the most to help bounce back from the lockdown.

“Many businesses have been operating in survival mode, especially those in Auckland, for over 120 days. They urgently need access to cash flow to get back to full steam as the country opens up and we let’s start rebuilding.”