By Gareth Vaughan
UDC Finance, the country's second biggest finance company, wants to see the Reserve Bank's regulatory net widened in a move that would see GE Capital, the country's biggest finance company, dragged in.
Tessa Price, UDC's CEO, told interest.co.nz that UDC wants the Reserve Bank to extend its non-bank deposit taker (NBDT) regime to all organisations in the non bank sector, not just those like UDC that borrow money from the public.
"Day in and out we deal with small businesses who want more certainty and help. To this end, and in line with international practices, we're proposing that the Reserve Bank extends the NBDT regime to all organisations in the non bank sector," said Price.
"Australia requires all institutions that provide credit to hold a licence. Extending regulatory protection would promote better health of businesses across the non-bank sector in New Zealand, which will reduce risk and promote greater confidence among investors and lenders alike," Price said.
"There is about NZ$4.6 billion of business lending sitting on non-bank financial institutions' balance sheets, (and) around 25,000 businesses employing approximately 120,000 people have loans with non-banks. Businesses should be able to plan for growth with certainty and know they're dealing with well governed organisations," said Price (pictured right). "That has to be good for everyone."
She said UDC saw two key risks; the loss of credit lines, which could be mitigated by prudential capital and liquidity requirements, and unregulated institutions. On the latter point a license to operate, with governance standards, would encourage responsible behaviour and protect the non bank sector, added Price. The non-bank sector includes finance companies, building societies and credit unions.
"Whilst the impact of one of those (non-bank) players withdrawing might not be big if you look at the overall banking sector, it certainly would have local and regional impact and it's a big number of businesses and jobs as well," she said.
What is an NBDT?
The Reserve Bank issued a consultation paper last month as it reviews the prudential regulatory regime for NBDTs. As interest.co.nz reported in April, one of the issues the Reserve Bank paper considers is the very definition of a NBDT. The Reserve Bank is looking at changing the definition of NBDT to ensure it better catches all entities that might create systemic risks in the NBDT sector. A licensing regime will also be introduced. Existing NBDT prudential requirements include a capital ratio, liquidity policy and limit on related party exposures.
A NBDT is currently defined as a person that offers debt securities to the New Zealand public, and carries on the business of borrowing and lending money, or providing financial services, or both. However, the third of three proposed definitions of NBDTs listed in the consultation paper is; "Defining NBDTs as entities that carry on the business of borrowing and lending, and/or providing financial services, with greater use of statutory carve outs." This option makes no specific mention of whether to be a NBDT an entity must take deposits from the public or not.
The Reserve Bank paper notes that as a starting point entities carrying on the business of borrowing and lending should be treated as NBDTs where they are not already registered banks.
"Entities carrying on the business of borrowing and lending will inevitably have a high degree of interconnectedness with other participants in the economy, and will often offer essential transactional accounts to unsophisticated investors. Taken together, we consider that these are the fundamental reasons why NBDTs should be prudentially regulated."
GE Capital incorporates GE Finance & Insurance (GE Money), Custom Fleet, GE Commercial Finance NZ and GE Commercial Finance (USD) New Zealand, and is a subsidiary of US conglomerate General Electric, through whom it sources its funding. KPMG's 2012 Financial Institutions Performance Survey notes that with total assets of NZ$2.5 billion, GE Capital is New Zealand's biggest finance company by assets, ahead of UDC - a subsidiary of ANZ.
A GE Capital spokeswoman would only say; "“We are aware of the Reserve Bank consultation paper and while we won’t be making a submission, we will continue to monitor developments closely.” Submissions closed last Friday.
Meanwhile, Price said during the height of the global financial crisis a lot of businesses approached UDC as some of its competitors, especially in car finance, were scaling back their New Zealand business - or pulling out of the country altogether. These businesses were "suddenly really concerned" about where they would get money from and wanted UDC to step in.
"Some (car) dealers got to the last week to find money to keep their business going. Now these are healthy businesses, but some players (lenders) in the market didn't have the funding in place," said Price.
"I don't want to name names. But we had a particular organisation that came to see us, and did the right thing by their customers, to say they had a number of franchised dealerships across the country with wholesale (borrowing) facilities and they needed to find quite a large number to replace. They asked if we could pick those customers up and replace the funding. We funded about NZ$125 million."
GE pulled out of car financing in New Zealand in 2008.
Price said she wasn't aware of any major finance companies wanting to pull out of New Zealand at the moment.
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