Consumer finance lender GE Money New Zealand is on a growth drive as it prepares to launch credit cards next year and eyes opportunities in markets as diverse as groceries and jewelry.
Aaron Baxter, GE Money NZ's managing director, told interest.co.nz that after quitting “low margin” car loan and mortgage businesses in 2008 and cutting costs, the lender was now back in growth mode.
"We’ve got 500,000 customers which equates to about one in four households. Our assets are NZ$1.4 billion,” Baxter said. “Conservatively I’d like to look at double digit growth over the next two to three years particularly with the credit card operation coming into play.”
GE Money NZ was “spending millions at the moment” on infrastructure and redesign as it prepares to launch credit card services in 2011.
“That’s going to be a big play for us.”
Baxter, an Australian who has been with GE since 1998, took the reins at GE Money NZ in April. He said the firm currently had four key strategic partners – Harvey Norman, Noel Leeming, Trade Me and Kiwibank – and was looking for more as it eyes new markets.
“We’ve got an appetite to look for additional white label partners,” Baxter said. “What we essentially look to do is partner with really strong brands and we’ll manufacture financial services on their behalf.”
Initially GE Money NZ was looking for partners in the personal loan and retail finance areas. Once its credit card business was up and running it would look for partners there too.
“It doesn’t necessarily have to be financial services (partners). It could be a great brand that provides us with brand distribution and scale and then we complement that brand distribution and scale with financial rigor, discipline and expertise.”
Other target areas included groceries and jewelry.
“We’ve done a nice job with jewelry around the world with GE where we partner with leading jewelry brands to offer them interest free.”
Leveraging off parent's strength
Being part of giant US conglomerate General Electric (GE), which produces everything from jet engines to nuclear power generators, financial services, water processing, healthcare and TV programming , means GE Money NZ has a parent-funder with a AA credit rating and Baxter said the local business was funded 12 months in advance. The NZ unit now had approval from its masters in Sydney and Tokyo to grow.
“So we’ve got the appropriate investment now to seriously go after growing assets,” said Baxter.
This could potentially include acquisitions.
“We’ve got a very nice position in the New Zealand market now,” Baxter added.
“We’re the clear alternative to the banks. We’re going to look to play in areas where the banks aren’t necessarily good at (it) and where we’ve got scale and differentiation.”
“So that’s why we’re focused on our retail finance business, our insurance business and our personal loan business.”
GE Money, which entered the NZ market in 1982, bought finance company AGC from Westpac for A$1.6 billion in 2002 and the previously Eric Watson controlled Pacific Retail Finance in 2006. After buying Pacific Retail Finance GE Money was forced to refund 3,610 customers about NZ$3.1 million for over charging on hire purchase products by the company during Watson's tenure.
Two years ago GE closed its Wizard Home Loans business and pulled out of making car loans. It also closed branches and switched focus to online and telephone sales.
Baxter said the car finance and mortgages businesses had been low margin, high capital businesses and there were no short-term plans to re-enter those markets. Through the global financial crisis GE Money NZ had shrunk its fixed cost base and been "prudent" in terms of credit limit allocations.
"Now we’re tracking significantly better from a bottom line perspective year-on-year and that’s mainly due to the favourable (loan) loss outcomes that we’re seeing," said Baxter.
He wouldn't provide specific figures but said GE Money NZ's June financial year result was "significantly" better than the previous year and if the businesses performance so far this year continued, the firm's annual financials would improve again.
"We’re seeing solid asset growth within our continuing operations. Our margins are significantly better and that’s mainly due to exiting wholesale auto as well as home lending and focusing in on those higher returning products and segments – insurance, personal loans and retail finance," said Baxter.
"That has naturally given us a huge kick up from a margin perspective."
Pre-GST hike boost
Baxter said a recent Harvey Norman sale, timed ahead of the October 1 increase in GST to 15% from 12.5%, had provided GE Money NZ with "a nice flow on in acceleration of sales." The company had also experienced "very strong" personal loan volumes through August. This double digit growth saw record historical volumes in GE Money NZ personal loans and the highest monthly volumes yet from its Kiwibank loans, which were launched in September 2009.
"Some of that may have been accelerated by GST as well."
The company's interest free retail finance business, whereby customers can make purchases and pay no interest until a set date in the future, had proven very resilient during the economic downturn. Baxter said about 75% of purchases made under the interest free deals are paid back within the interest free period meaning customers don’t pay any interest.
"I challenge any bank to be able to come up with that sort of opportunity for the New Zealand consumer," said Baxter.
"It creates a huge amount of loyalty within the (customer) data base. Seven out of 10 customers are repeat purchasers on interest free."
Meanwhile, Baxter declined to comment on issues related to disgraced property investment scheme Blue Chip. GE has been granted leave to appeal to the Supreme Court after an Appeal Court ruling found a NZ$629,566 GE loan to Whangarei pensioners Bruce and Dorothy Bartle, taken out to buy a Blue Chip property, was oppressive under the Credit Contracts and Consumer Finance Act.
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