The non-bank finance sector has managed a modest lift in profit as a fall in bad debts and costs offset negligible growth in lending.
John Kensington. Photo: Supplied/KPMG
A survey by the business advisory firm KPMG, covering credit unions, building societies and finance companies, showed overall net profit increased 3 percent to $292.3 million.
KPMG head of banking and finance John Kensington said the sector had mixed results through the year as it negotiated Covid-19 related lockdowns hitting its customer base and demand for finance.
"The ability to still manage positive movement in NPAT (net profit after tax) reflects how the sector has rethought their processes due to Covid-19, and made tough decisions to streamline their businesses and eliminate unnecessary expenses due uncertainty over what the future might hold."
The 26 companies in the survey include major business lenders such as UDC Finance, through to car finance companies, and credit unions.
Kensington the sector retained a high level of concern, which showed in the amounts being put aside for possible future bad and doubtful debts.
He said the sector's one million plus customers were often small or specialist businesses, which would not get normally get lending from mainstream banks, and the concern would be how well they would rebound from the loss of businesses because of the lockdowns.
"The sector can't help but hold concern for what may happen to those large number of inner-city businesses that had been without foot traffic for over 100 days. And crucially, will they be able to access the cashflow they need to recover?"
The report showed lending grew less than 1 percent, a fall in net interest and non-interest income, a sharp fall in interest margins, offset by a fall in funding costs and a 10 percent fall in operating expenses.
New law's unintended consequences
Kensington said a looming major concern for the sector and broader economy was the unintended consequences of recent changes made to the Credit Contracts and Consumer Finance Act (CCCFA), which came into effect on 1 December.
He said the changes requiring responsible and integrity driven lending were desirable, but concerns were rising that they will lead to higher processing costs, delays in decisions, and more loans being declined.
"What we will inevitably see is higher-tier lenders having to say no to some of their clients, forcing these borrowers to seek out lower-tier lenders to get the finance they need, and with that their borrowing costs will increase," Kensington said.
"And borrowers who find themselves with no option left in the market may go to unscrupulous and unregulated lenders, where the unintended consequences of CCCFA will be at their most severe."
That raised the fear of a credit crunch for businesses, which the economy would need in its recovery next year, he said.
