UDC considers extended Crown guarantee, seeks exemption from NBDT regulations

UDC Finance, the country’s biggest finance company, is yet to decide whether to apply for the extended Crown retail deposit guarantee scheme just three weeks before the initial guarantee scheme ends and the extended one begins.

Chris Cowell, UDC’s chief executive, told interest.co.nz the ANZ subsidiary was still considering the matter.

“We haven’t made a decision yet,” Cowell said.

Asked when UDC might make up its mind, Cowell would only say: ‘I’ve no other comment other than to say we’re considering the matter at this moment.”

This is despite ANZ, in its March quarter General Disclosure Statement, saying it doesn’t intend to apply to be covered by the extended Crown guarantee because Reserve Bank governor Alan Bollard has said there's no need for banks to partake in the extended scheme.

So far just eight companies have been approved for the extended guarantee scheme – Marac Finance and its merger partners Canterbury Building Society and Southern Cross Building Society, Equitable Mortgages, Fisher & Paykel Finance, PGG Wrightson Finance, Wairarapa Building Society and the now in receivership South Canterbury Finance.

Cowell said reinvestment rates among UDC’s investors were “well over” 70%.

The extended scheme kicks in on October 12, when the initial two-year scheme ends, running until December 31, 2011.

Meanwhile, Cowell said UDC was seeking an exemption from the related party rules included in the Reserve Bank’s non-bank deposit taker (NBDT) regulations due for introduction from December 1.

“We will be seeking an exemption from the likes of the related party exposures because we are owned by a bank and the bank is already subject to regulatory requirements through the Reserve Bank and we as a subsidiary fit under that,” Cowell said.

The process of seeking an exemption was already underway, he added, but UDC had yet to get any feedback from the Reserve Bank.

Under the central bank’s rules, related party restrictions place a limit on the aggregate credit exposures of a NBDT, or the borrowing group, to all related parties to be specified in NBDT's trust deeds. The related party exposures can’t exceed a maximum limit of 15% of tier one capital.

Cowell noted that UDC supported the overall thrust of the NBDT regulations and their aim of protecting investors. UDC’s risk management practices and AA credit rating “ticked the boxes,” he said.

Being part of ANZ had given UDC strength over the past three or four years, Cowell acknowledged, as numerous finance companies have fallen by the wayside.

“I think the key really is that we’ve stuck to our knitting,” Cowell said.

UDC had not financed any property development, but rather the more than 70 year-old company fully owned by ANZ since 1980, had continued to finance plant, equipment and vehicles. Added to that was funding support from ANZ and governance, risk management and liquidity risk forecasting which mirrored its parent.

“We’re the only finance company in New Zealand that operates under Basel II conventions,” said Cowell. “Being part of the ANZ has given us strength.”

UDC has a NZ$650 million committed facility on demand from ANZ. As of June 28, it had drawn down NZ$325 million from the facility, which carried an interest rate of 3.71% at March 31.

The firm’s half-year results to March 31 show term loans of NZ$1.32 billion and gross loans and advances of NZ$2.15 billion versus NZ$1.38 billion and NZ$2.29 billion a year earlier, respectively. For the six months to March 31, UDC produced total comprehensive income of NZ$3.5 million, up from NZ$571,000 in the same period of the previous year as provisions for credit impairment fell to NZ$13.7 million from NZ$21 million.

With the company currently running television advertisements boasting that “we have lots of money to lend,” Cowell said, without providing detail, that UDC’s share of its target lending markets was up. UDC was seeing a good mix of investment across its term investments, capital drawdown, telephone call accounts & PIE funds. Investors were also choosing to invest for a good mix of terms.

“In a general sense we’re really pleased with where we’re positioned,” said Cowell. “We believe we’re doing well against our competitors.”

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2 Comments

Why does an AA rated finance company need a Gov't G'tee? This is ridiculous, the Gov't should take the lead here and tell UDC that they cannot be covered.  

Maybe if anz gave UDc an irrevocable guarantee... Put there money where their mouth is, they may get an exemption. It seems like a case of have your cake and eat it