Finance companies have disproportionate growth

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A new Reserve Bank report on non-bank finance companies illustrates the rapid growth that has been occurring in this sector.

Wednesday, July 9th 2003, 8:05AM

Although banks still are the biggest player in the household deposits and consumer and business lending area, the finance companies are the ones who have been capturing all the growth.

“Their share of growth has been disproportionate and represents a change from the previous 10 years period when banks rapidly expanded at the expense of other deposit taking institutions,” Clive Thorp of the bank’s Financial Stability Department says in his report.

“It appears as though a minor rebalancing of the distribution of finance from deposit taking institutions away from the banks may have been underway since 1998.”

Finance companies have been the most rapidly expanding and largest group of non-bank deposit taking institutions in recent years.

Total deposits have risen from $3.62 billion in 1998 to $7.66 billion in 2002, with growth of 29.8% and 18.02% in 2001 and 2002 respectively.

Another feature is that the non-finance sector is concentrated in amongst the bigger companies.

The three largest companies’ assets represent more than a third of the total assets of the group, two-thirds are contributed by 10 companies and 80% by all companies with total assets of more than $200 million at December 2002.

Thorp says that non-bank organisations tend to specialise in separate areas of lending. The main groups are:

• Residential and commercial property lenders focussed on development finance
• Vendor finance subsidiaries of multinationals lending to facilitate product sales
• Consumer finance market financiers for cars and other consumer purposes
• Business and farm financiers – plant and machinery, business equipment leasing, farm equipment and seasonal lending.

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