By Gareth Vaughan
Plant, equipment and vehicle lender UDC Finance, an ANZ subsidiary, has recorded its highest annual profit in eight years and its CEO says the new financial year has kicked off with a record month for new car loans.
UDC says profit after tax rose NZ$9 million, or 31%, in the year to September to NZ$37.95 million from NZ$28.9 million the previous year. That's the finance company's highest annual profit since it delivered NZ$43.9 million in the year to September 30, 2004. UDC's financial statements show it paid ANZ a NZ$20 million dividend, equivalent to 96 cents per share, this year compared with no dividend last year.
CEO Tessa Price told interest.co.nz November was a record month in terms of new lending for cars with just over NZ$33 million worth of loans. Net new lending in the September year topped NZ$1 billion, and was up 7.5%, or NZ$74 million, year-on-year.
"New lending in October was just over NZ$109 million, that is the highest month since 2006," Price said. "And in November we had a record retail car finance month. What I'm seeing now is there's more stability and more positivity around New Zealand."
"I think there are really positive signs out there in terms of sentiment and growth and we're really helping to support that, not only with cars that go to consumers and businesses, but with asset finance as well," said Price, who succeeded the retiring Chris Cowell as UDC's CEO in June, said. See a Double Shot interview with her here.
Sales of both new and used imported vehicles have been back at levels not seen since between 2006 and 2008.
'Quality' new lending
Price said the profit rise was the result of "quality" new lending.
"Our provisions are down, bad debts are down. We lent just over NZ$1 billion this year. We've managed to maintain our margin even though there has been a lot of pressure there and we've managed our costs very effectively including the cost of raising some of our funds at the retail level. So it's a combination of those factors," Price said.
The financial statements show, however, that gross loans fell about NZ$5 million in the six months to September 30 to NZ$2.316 billion and total net loans dropped just under NZ$2 million to NZ$2.014 billion.Meanwhile, UDC's annual provision for credit impairment increased NZ$1.14 million, or 23%, to NZ$6 million.
Annual net interest income rose NZ$11.9 million, or 15%, to NZ$88.68 million. Total operating income also increased 15%, to NZ$89.4 million, a big contrast to operating expenses which fell NZ$226,000, or about 0.7%, to NZ$30.95 million.
KPMG's annual Financial Institutions Performance Survey for Non-banks, also out yesterday, showed UDC's annual interest margin improved to 4.27% from 3.69%, and its interest spread rose to 3.48% from 2.85%. KPMG also has UDC's operating expenses to operating income down to 34.61% from 40.20% and its impaired asset expense to average loans and advances at 0.30%, up from 0.24%. With total assets of NZ$2.1 billion, UDC is New Zealand's second biggest finance company behind GE Capital, which has about NZ$2.5 billion of assets.
Retail funding market 'competitive'
UDC gets its funding from issuing debenture stock and via a loan from ANZ. As of September 30 it had NZ$1.47 billion worth of debentures on issue, up about NZ$20 million since March 30. It has an NZ$800 million ANZ credit facility, of which NZ$290 million was drawn down at September 30.
UDC, which shares ANZ's AA- credit rating from Standard & Poor's, tends to offer interest rates on its debentures a little higher than those on its parent's term deposits. For example, UDC's advertised 12-month rate, with a minimum deposit of NZ$5,000 and interest paid on maturity, is 4.30% versus ANZ's 4.10% with a minimum NZ$10,000 deposit and interest paid monthly. For three months UDC pays 3.35%, and for six months 4%, again both with minimum deposits of NZ$5,000 and interest paid on maturity. ANZ's advertised three and six-month rates are 3.25% and 4%, respectively, with NZ$10,000 minimum deposits and interest paid on maturity.
Price said it was a competitive retail funding market.
"What we do well, and we do different to banks, is we've got a very good service model in place. So you ring UDC you speak to a real person. You do not get a call centre and our rates are competitive as well. We look for different angles in terms of who we are targeting, and we have very good retention rates with our customers and that really revolves around service, service and service," said Price.
Banks main competitors
On the lending side the banks, except for ANZ, were the major competitors although Heartland New Zealand's Marac and GE Capital were also sighted, Price said.
Meanwhile, UDC's financial statements show credit exposure to the construction sector up NZ$51 million year-on-year to NZ$248.2 million. Other sectors to record solid annual lending growth were retail and wholesale, personal and other services, including car loans, which rose NZ$52.2 million to NZ$388.49 million, and finance, investment and insurance. Exposure to the agriculture, forestry and fishing industry was up NZ$5.7 million to NZ$350.89 million, and UDC's exposure to the transport and storage sector was slightly higher at NZ$351.1 million.
Heading in the opposite direction was exposure to the manufacturing sector, with this down NZ$25.6 million to NZ$137.67 million.
Price said lending growth to the construction sector wasn't solely due the Christchurch rebuild.
"Christchurch and the South Island is very healthy and strong at the moment, but we are seeing an uplift in construction in different areas. What we're seeing now, as opposed to five months ago when I started, is that customers now have the work they were hoping they'd get five months ago and have now got a healthy pipeline. So they're more confident and obviously they're buying more equipment, whether it's a truck or a digger or another piece of equipment. That is across the board," Price said.
Finance company sector profit up 14%
For the 16 finance companies included in its survey with total assets of at least NZ$75 million, KPMG said aggregate annual profit rose 14% to NZ$234.6 million. Total assets rose 1.64% to NZ$8.5 billion. The overall net interest margin rose 73 basis points to 7.21% from 6.48% due to cost of funding falling and subdued lending growth.
KPMG said a theme highlighted by representatives of several finance companies was banks entering their turf.
"This indicates that banks are hungry for loan book growth and the cycle has come again where banks are interested in looking into other potentially profitable markets which they typically have not had a risk appetite for," KPMG said.
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