KEY POINTS:
One of New Zealand's biggest consumer credit lenders says banks have been making aggressive moves into areas once dominated by finance companies.
The comments, from GE Money's New Zealand managing director, come as one of its rivals, Geneva Finance, said last week it was pulling back from lending
money through some of the smaller car dealers.
GE Money's Greg White says neither the global credit squeeze, nor the collapse of locally based finance companies, is changing the way it does business. The big banks are, however, now aggressively moving into the same space through its offering of personal loans.
"Fundamentally, not a lot has changed for us," says White.
"Our partners - the likes of Noel Leeming, Harvey Norman, Freedom Furniture - are extremely important to us. They can take confidence that they've got the support and backing of GE money.
"We haven't changed any processes, we have a very strong responsible lending agenda. And so from our point of view, we're very keen to make sure that our customers assessed for credit can afford it - there's no point for us lending to someone knowing they can't repay it."
Asked if GE Money has moved into areas of lending abandoned by other, smaller finance companies, such as Geneva, White says it will only do so if it can keep its processes intact.
"Traditionally it's not our space, what we won't be doing is to all of a sudden 'buy deeper'. That's not what it's about. Geneva plays in some of our segments for sure. In some of those segments I think that we'll hopefully get some opportunity."
Personal and car loans are two areas in which GE competes with Geneva. White says GE Money will not expand into any new area of lending if it means changing its already "robust and rigorous" loan assessment criteria.
Banks are also providing competition for loans. "There is no doubt they are aggressively targeting segments that they have not traditionally played in," says White.
Glen Martin, manager of consumer finance for ASB Bank, says the bank has seen significant growth in its personal loan business over the past 12 months. A lot of its recent growth has been driven by a new "debt consolidation product" released to get customers to bring high interest debt across to ASB.
Martin says there has been a significant shift in the past couple of years, with banks moving into the higher interest debt market previously dominated by the finance companies.
In the past a customer might have been able to get credit only from one of these companies rather than a major bank.
"Definitely it's been a strong focus for the banks these days, particularly in the personal loan type product."
Martin says it offers a special interest rate of 14.95 per cent on its new debt consolidation product first offered in September.
Debt being consolidated has come from hire purchase deals, store cards or credit cards, which tend to charge 19-23 per cent.
Loans for motor vehicles is another area being bought over to ASB, where interest rates range from 20-30 per cent. ASB does not have relationships with car dealers, with customers encouraged to go to the bank first to organise the loan. "It's more of an education-type process, where a lot of customers go and search for a car and don't think about the finance until they're there and they sign away," says Martin.
"So we are trying to educate our customers to come to the bank first and sort out the finance, then go look for the car."
ASB Bank offers personal loans at 14.5 per cent secured and 17.5 per cent unsecured. "Most banks have pushed into the personal loan space and customers will be aware they're offering that now."
Westpac spokesman Craig Dowling says the bank has not seen any particular changes in its writing of personal loans given the problems faced by some of the finance companies.
The criteria applied by banks on personal lending may be part of the reason for this.
"Those people who may have been getting loans through other mechanisms before still may not qualify on the criteria applied by banks," says Dowling. "Where we have seen the difference is on the savings side."
Westpac has just announced a new low interest rate credit card, which carries a 4.99 per cent rate for all purchases for six months after the account is opened.
In the past, such rates have been reserved just for balances transferred from other credit cards.
"This offer is new territory," says product manager Simon Neal.
"Until now most banks have offered special rates on transferring credit card balances, but any new purchase has incurred the standard interest rate right from the start. It's a great option for people who want to manage their finances over Christmas."
Customers should always be careful not to overextend, and should pay more than the minimum payment when possible, but if they need the flexibility of credit to see them through Christmas, this offer will help counter the new year spending hangover.
Neal says: "They'll be able to do their shopping and pay their purchases off over the next six months. That makes for a pretty painless and hassle-free Christmas."
Andrew Dutkiewicz, chief executive of appliance and electronic retailer Noel Leeming, says about a quarter of its total sales are from customers taking advantage of credit offered through the store.
Credit offered through Noel Leeming comes through GE Money.
There is a minimum dollar limit below which credit is not offered, so only higher priced items can be paid for in this way.
Dutkiewicz says signing up for credit is not as big a problem when the job market is good.
"The first thing that people worry about when they take on credit is the likelihood that 'will I have a job to pay it back?' and with 4 per cent unemployment, people are confident," says Dutkiewicz.
ASB Bank economist Nick Tuffley says while some finance companies are "stepping back and not lending as much," it is unlikely to have a big effect on consumers.
" ... the exposure to consumer lending part is only one part of the story," he says. "A lot of mainstream shoppers will find if you're going into an established finance chain, for example, they are likely partners with a well-established large finance company - so there may not really be much change to be honest."
Finance companies account for a mall proportion of total lending, says Tuffley. And the money that has been lost by investors is less than 1 per cent of total household wealth. "You've got to put it in perspective."
