Non-bank company profits fall 8pc as Covid bites

Profits in the non-banking sector fell by nearly 8 per cent to just shy of $300 million in the September year, driven largely by a rise in impairment provisions.

KPMG’s non-bank sector report has revealed some of the impact of Covid-19 on the sector which includes credit unions, non-bank deposit takers, building societies and finance companies.

John Kensington, head of banking and finance at KPMG, said while the banking sector had received tools from the Government and regulators to provide care and assistance to customers the non-bank sector had not so far.

Despite that the sector had committed to providing their customers with the same level of relief and assistance as banks, via the strength of their own balance sheets, he said.

“It may appear unusual that they were not covered by some form of government support, but that’s probably because when looked at numerically it is a small sector, at just 3-4 per cent of total lending nationally.

“However, what we need to remember about that lending is that the sector touches one million plus customers nationwide and it is specialist lending – the type of lending banks either can’t or won’t offer.”

While the financial impact had yet to be seen for those businesses with a December or March balance date it was a different story for those with a June or September financial year with a more severe impact from provisioning.

“What we will see in the future is still very difficult to forecast, but it is unlikely that the impact on the non-bank sector is over yet,” Kensington said.

Net profit after tax fell by $26 million to $299.6m. The main contributor to the fall was a $48.06m increase in impaired asset expenses, which grew to $163.85m due to asset quality decreasing as a result of uncertainty.

Of the 25 companies covered by the report, 13 saw a rise in profits but only three of those had balance dates after the level 4 lockdown.

Twelve of the 25 saw falling net profits, with Ricoh reporting the largest drop of 82 per cent followed by First Credit Union, which saw a drop of 73.5 per cent. Despite the drop, both were still profitable.

Credit Union Baywide was the only company in the sector to make a loss which KPMG mainly attributed to the remaining costs of an amalgamation coming through its financials.

Toyota Finance had the biggest dollar increase in profits with an increase of $5.32m to $25.75m, followed by First Mortgage Trust rising $5.04m to $44.4m.

FlexiGroup saw the biggest dollar value drop in profit, falling $18.75m to $23.22m, followed by UDC, which saw a drop of $7.27m to $62.4m

Profits among the finance companies seemed to have been hit the hardest according to KPMG although some of this was attributed to the timing of the financial results.

Total assets in the sector grew only 3.95 per cent which was low compared to the past three years which saw growth of 12.2 per cent in 2017, 14.7 per cent in 2018 and 9.4 per cent in 2019.

Kensington said that was a relatively strong result given the challenging operating environment.

“The biggest impact you see in these financial statements is the increase in provisioning and impaired asset expense, driven by forward looking provisioning models amid continued uncertainty.

“It’s rather counter-intuitive to have your past dues and impaired assets as good as ever but have that large provisioning, but it’s a reflection of the current environment and the forward-looking view that models take.”

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