KEY POINTS:
Figures released by the Reserve Bank should dispel fears that finance companies have been borrowing short and lending long, making them vulnerable to a "run on the bank".
For the first time the bank has unpacked its data on non-bank financial institutions into three categories: savings institutions (mainly
building societies), deposit-taking finance companies (which largely rely on retail investors for their funding) and non-deposit-taking finance companies (funded from the wholesale market).
It is the middle group which has suffered eight failures over the past four months.
The investor funds put at risk by those failures represent about 14 per cent of the total assets of the deposit-taking finance companies.
This segment of the industry relies on households for two-thirds of its funding, or nearly $7 billion, by way of retail offerings of debentures.
That is dwarfed by $75 billion in retail deposits at the banks and a further $4 billion in the non-bank savings institutions (building societies, credit unions and the PSIS).
The data released last week provides an aggregate balance sheet for the nearly 30 deposit-taking finance companies at September 30. It includes the companies which have failed, as their assets and liabilities still exist.
On the funding side, $2.33 billion matures in less than 90 days and $5.89 billion within a year.
On the lending side, $2.85 billion matures within 90 days (or at least comes up for interest rate reset), covering the corresponding funding maturity with $500 million to spare.
And $5.63 billion in loans matures within a year. That falls short of the corresponding funding maturity by $260 million. But just under $1.1 billion of the finance companies' funding comes from banks.
Even if you deduct the $600 million the finance companies have on deposit at the banks, the net $500 million in funding from banks to finance companies covers the $260 million.
On a two-year horizon the duration mismatch widens to $1.1 billion but again that is covered by net bank funding and the capital and reserves of the finance companies ($1.3 billion).
These are aggregate figures for deposit-taking finance companies collectively; they say nothing about the position of individual institutions.
The biggest concentration of lending by deposit-taking finance companies is to property developers - $4 billion out of a total of $11 billion and more than twice the $1.9 billion in consumer finance.
The Reserve Bank is due to deliver its six-month financial stability report on Wednesday. The last one, in May, talked of "latent" risks in property.
Goldman Sachs JBWere's Shamubeel Eaqub said about 40 per cent of new lending to property development came from finance companies. "While funding will still be available for development projects, stricter lending criteria, prevailing high mortgage rates and low peak cycle yields have the potential to stymie new development projects."
There were anecdotal reports of this already, he said, with some "motivated" sellers in the market.
Households withdrew a net $276 million in funding from the finance companies in the September quarter, so that their exposure at $6.9 billion was where it was last September.
Their lending increased by $133 million over the same period, including a $270 million increase, to $1.9 billion, in securitised housing and consumer finance to households.
Eaqub said that while the finance company sector was clearly in the throes of a painful adjustment, he did not expect a significant impact on the economy, because lending from the sector amounted to about 7 per cent of total lending and households had only 5 per cent of their assets invested in finance companies.
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* Retail-funded finance companies collectively have not been borrowing short and lending long.
* Those which have failed represent about 14 per cent of the sector.
* But it remains exposed to the property development market.