It has done a review of 20 companies based on publicly available information and concluded that “with the exception of a handful of the larger or more seasoned companies, the general credit quality of the sector is clustered toward the lower end of our traditional rating scale.”
It says that the probabilities of default are in the region of 3%-5% over 12 months.
“Put another way, there may be a few more defaults over the next 12 months.”
It describes the review as being “high-level” because of the lack of information and transparency in the sector.
S&P goes on to say that financial reporting in the sector is “limited, inconsistent, and often not comparable.”
It says there is growing demand for improved disclosure and financial transparency.
However also yesterday, Dominion Finance shareholders were told at the company’s annual meeting that there has been “a beat-up of the non-bank financing sector by media and other sources, and to a large degree this has been driven by competitors seeking investors' funds, concerned at the increase in funding that finance companies have enjoyed at their expense.”
Outgoing chief executive Terry Butler said this “is especially noted in the funds management and banking areas of fixed interest securities.”
He said that there will be “a further flight to security for those investors more concerned about the security of their investment rather than the higher rate of return.”
“Since balance date we have experienced an increase in our business, both from investment and lending, and we see little signs of a slow down in our sector.”
Also yesterday Trustees Executors released a paper: Finance companies – Does risk equal return?
Read it in www.depositrates.co.nz.
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