Non-bank profits rise 57 per cent but lenders see economic uncertainty ahead

Non-bank lenders have seen profits jump in the last year. Photo / File

Profits in the non-banking sector jumped by 57 per cent over the last year, driven by strong asset and lending growth.

But lenders see dark clouds on the horizon with the economic uncertainty ahead in 2023.

Non-banks which include finance companies, credit unions, building societies and non-bank deposit takers collectively had net profits rise $143.24 million to $395.3m in 2022, according to KPMG’s Financial Institutions Performance Survey.

Speirs Finance Group had the largest percentage growth in profits, up 1892 per cent - a rise of $10.1m from $533,000.

Lattitude Financial Services had the biggest dollar value rise, up $29.6m to $50.24m.

UDC Finance is the largest non-bank lender by assets followed by Avanti Finance and Latitude Financial Services.

Of the 26 businesses in the survey, 18 had increases in net profit after tax while eight saw a fall.

Unity Credit Union reported the biggest decrease, down $3.56m to -$119,000.

ASX-listed Harmoney was the only other non-bank to report a loss of $20.179m but that was an improvement from its 2021 loss of $25.295m.

Total assets rose 12.62 per cent to $18.56 billion while net loans and advances rose 13.7 per cent to $15.062b.

The average net interest margin rose 75 basis points from 5.32 per cent to 6.07 per cent even with the rising interest rate environment.

But John Kensington, head of banking and finance at KPMG, said the survey participants also highlighted major concerns and uncertainty over the path the economy would take going into 2023.

“The next 12 months look very uncertain, with rising interest rates and rising inflation likely to continue for another six to nine months.

“It’s gone a lot higher and done so a lot faster than predicted, and as a result no-one really knows how high it’s going to go - or when it gets to its peak, how long it’s going to stay there.

“The real fear is that if interest rates keep rising, there will be a recession. All of the negative indicators combined with this uncertainty make for another challenging year in 2023,” he added.

Non-banks were concerned about the impact on their businesses and how to protect margins and profits, as well as the potential impact on customers of rising interest rates.

Kensington said non-banks also highlighted concerns around regulation which tended to favour the banking sector over the non-banks.

“Regulation is needed, but it needs to be scalable and proportional so that even the smallest entities can implement it without a massive drain on their resources,” Kensington said.

“It also needs to address an actual issue, not a perceived one, needs to have no unintended consequences, and ultimately it needs to be fit for purpose.”

Kensington said an example of how not to do it would be changes made to the Credit Contracts and Consumer Finance Act (CCCFA) in December last year and the pain it caused throughout the industry.

“CCCFA is still causing disruptions to lending in the non-bank sector.”