More finance company failures likely

While the RBNZ sounded generally upbeat on the outlook for the banking sector, it was once again cautious on the non-bank sector and reiterated its view that some companies in this sector will face closure as the New Zealand government's guarantee scheme winds down.

Many non-bank deposit takers are currently shielded to an extent from the funding pressures in the market because of the guarantee. But as the extended guarantee requires higher fees and a credit rating of BB or better (and which some may struggle to achieve) the RBNZ believes it is likely that some more may have to shut shop. Two small finance companies using the guarantee have already done so.
 
The RBNZ has noted that some restructuring has already begun, with major finance companies planning to recapitalise and refocus their business away from property development finance to the small business finance sector.

Most of the finance companies in receivership or moratorium were heavily exposed to the property development sector.
 
"It is not likely that all deposit-taking finance companies will be able to successfully raise additional capital and some failures among the guaranteed finance companies are to be expected," the RBNZ said.