KEY POINTS:
Ratings agency Standard and Poor's has a "stay calm" message for people investing in New Zealand finance companies.
"The economy is still sound, that's the number one message," said S&P ratings services executive Shaun Evans.
"Number two is that there are certainly some very good finance companies in
the sector.
"But what investors need to be able to determine is who are the good ones and are there any that are still at risk."
Central to that question is the availability of information and independent research.
Seven finance companies have gone into receivership in the past year-and-a-half; the latest is Five Star Consumer Finance.
Evans, who is based in Melbourne, declined to be drawn as to whether any more failures were likely but he said that - in a market populated with 70 or so finance companies - the consolidation was likely to continue.
Commerce Minister Lianne Dalziel last week said the Government was already working on a new regulatory framework but that it would not take full effect for another three years.
"The big issue as far as we see is a lack of independent information, and we believe that independent international credit ratings can add value in that sector," Evans said.
Past analysis of New Zealand finance companies suggested companies that were high risk were not paying appropriately higher interest rates to investors.
"Some companies out there may well be paying the appropriate returns now, but our research a year ago suggested that not all were," Evans said.
As the market developed more analysis around the risks involved, more appropriate returns for investors in finance companies would start to apply, he said.
The recent failures appeared to be around liquidity issues, not earnings, as concerned investors stop renewing their deposits.
Evans said that some of the failed companies were still making money when the receivers were appointed.
"There is certainly an issue of confidence at the moment, and I think that the objective we need to bring in here is to enable people to make informed decisions," he said.
S&P's ratings system is based on the probability of default.
At the top of the scale, S&P's "AAA" rating means the probability of default over the course of a year is very low - zero to 0.01 per cent. A "BB" rating puts the probability of default at 0.6 to 1.6 per cent, while a "B" rating lists the probability at three to 11 per cent.
At the "highly vulnerable" end of the scale is "C", which lists the probability of default at 25 to 30 per cent.
A list of New Zealand ratings is on the agency's website at: standardandpoors.co.nz