Finance firms quit in face of new rules

Tougher regulations for finance companies have already resulted in some leaving the industry.

Non-bank deposit takers with liabilities of more than $20 million had to gain a rating by March 1 to continue raising money from the public and new capital adequacy requirements are also being put in place.

Two lenders, including one covered under the Government guarantee scheme, have pulled out of public raisings.

But one finance company, which hasn't borrowed money from the public for the past three years, says it sees the rationalisation of the industry as an opportunity and will start borrowing again.

Tony Phillips, managing director of Citywide Capital - an Auckland property lender - said the new rating regime had made it too tough for his small company to continue.

"We are only a small company and we are never going to meet the criteria, yet we are one of the successful companies that have got through it all."

The company, which until recently had been offering 10 per cent per annum to debenture investors, has pulled its prospectus and will now focus on targeting habitual investors which do not require a prospectus under the Securities Act.

Phillips said the firm had paid back all money owed to debenture investors.

Palmerston North-based Farmers' Mutual Finance, covered under the Government guarantee scheme until October 12, had also decided not to raise money from the public.

General manager of operations Owen Wallace said the changes had been a driver in its decision to cease taking money from the public in February last year.

It had not applied for a rating because it had no intention of re-entering the debenture market, he said.

"We decided being a finance company didn't fit our strategy and we wanted to focus on the insurance side of the business."

Wallace said the company had paid back most of its debenture investors but would still have a small number left when the guarantee ended on October 12.

It cannot apply for the extension because it does not have a credit rating.

Wallace said it would give investors the opportunity to have their money paid back at that point.

Auckland-based Business Finance is also covered under the guarantee but said it was not listed on the Reserve Bank's list of companies with a rating because it did not have a current prospectus.

Executive director Leo Davis said it was winding down its current debenture business, but after taking on a new shareholder last year the company intended to relaunch a prospectus this month.

"We have been out of the market for three years. But last year we took on another shareholder who is keen to grow the business."

Its new shareholder is Australian company Liberty Financial, which also owns 50 per cent of mortgage brokers Mike Pero with the NZX-listed NZF Group.

Davis said the company had attained a BB rating - high enough to be eligible for the extended Government deposit guarantee scheme - and planned to extend its lending from business plant and equipment into residential property mortgages.

"There is going to be much fewer finance companies around that are going to make the grade - that is why we are relaunching the business."

The company did not have any impaired assets, he said.

NZF Group's finance company NZF Money last week received a B rating, meaning it cannot apply for the extended guarantee.

OUT
* Citywide Capital
* Auckland-based property lender.
* Says it can't meet new requirements.
* Farmers Mutual Finance
* Palmerston North-based lender for farm-machinery.
* Wants to focus on insurance business.

IN
* Business Finance
* Auckland-based lender for plant and machinery.
* Plans to expand into property lending.