KEY POINTS:
Commerce Minister Lianne Dalziel says there is nothing she can do and is urging investors to exercise caution as fears mount of a deepening crisis in the finance sector.
This week's collapse of Auckland's Nathans Finance has prompted the Government to accelerate changes to finance sector regulations.
Dalziel
admitted that legislative framework was still some time away and there was little she could do now to reassure investors.
The only advice she could offer was for investors to exercise caution with investments. She was powerless to prevent people from withdrawing their funds from finance companies.
"How people respond will determine what happens," Dalziel said.
"There is nothing I can do about it. There is no one-size-fits-all. But the risk is no different this year to last year. The level of risk hasn't changed."
Five finance companies have collapsed in 15 months, amid allegations that some have deliberately underplayed the risks in a volatile market.
About $1 billion is now owed to thousands of mostly "Mum and Dad" investors as a result of the collapses.
This week Nathans Finance was put into receivership with 7000 investors owed $166 million.
The future of a sixth company, Christchurch-based Property Finance Group, hangs in the balance after it suspended trading on the stock market. It is due to make a statement on its position tomorrow.
A "flight to cash" has already begun but some investors, desperate to withdraw their money from finance companies they no longer have confidence in, have been told they will have to wait it out.
Dalziel held an urgent meeting with the Securities Commission this week to look at legislation to be introduced to Parliament later this year aimed at better regulating finance companies.
She is concerned some companies have not been upfront about the risks involved in investing.
"There is always a risk," she said. "There is a lot of mispriced product out there. It gives the indication it's a lot safer than it is. People have a right to know."
UDC Finance general manager Malcolm Tilbrook said compulsory credit ratings were needed to help investors make better decisions.
He confirmed that some companies had been deliberately playing down the risks.
"Under-pricing is an alarming new trend, whereby the interest rate offered does not necessarily reflect the risk associated with the investment," said Tilbrook.
"It takes years to build up a nest egg, so it follows that investors should take time to look beyond the interest rate and find out about the company they're considering."
ASB Bank chief economist Nick Tuffley told the Herald On Sunday: "People are definitely feeling a bit of pain." But he dampened fears of a wider impact on the NZ economy, describing it as "very sound".
Geneva Finance CEO Shaun Riley played down reports of investors desperate to withdraw cash from finance companies. "Our reinvestments rate is strong... with continued new investment demand," he said.
Riley welcomed future Government regulation as well as a mandatory credit rating.
"However, we believe it's inappropriate for the Government to warn people against investing in finance companies as a whole, as this is both detrimental to the industry and the people employed within it."