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S&P paints picture of debenture market

Standard and Poor's says that when retail confidence returns to the finance company sector, it may look a lot different.

Tuesday, April 1st 2008, 5:04AM
It is expecting that there will be aggregation within the sector and that new investment products will be issued.

"Although confidence may eventually return to debenture products, it is also likely that new investment products will be offered in the future, and that the industry will undergo a structural change," S&P analyst Shaun Evans says.

S&P says the sector is going from a period of strong growth and good profitability, to an era of "waning retail confidence" and falling liquidity.

It says the companies which didn't diversify their funding base before the credit crunch are now having trouble doing so.

"Most finance companies are now struggling to grow, or have decided tactically to curtail lending to preserve liquidity."

The rating agency says that liquidity is the key industry risk and a "critical rating factor."

There is an expectation that companies will produce lower profits than previously as lending growth slows.

S&P says there are emerging signs that companies lending on property development will get hit by the property market slowdown.

"Increasing non-performing loans and reduced profitability are now the secondary threats to credit quality in the sector - liquidity being the primary risk factor. This is especially for those companies operating on thinner interest margins."

While S&P is negative on finance companies and debentures, it paints a more positive picture of building societies, credit unions and savings institutions.

"While not immune from the effects of the global credit crunch, these entities in general are less exposed, being mainly supported by retail deposit bases, albeit liability profiles are tilted towards shorter term funding maturity compared to their lending books."

S&P says confidence amongst retail depositors has been retained in this sector, while the opposite has happened with finance companies.

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ANZ Special - 3.55 3.55 3.99
ASB Bank 5.20 3.89 4.05 4.39
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Credit Union Baywide 5.65 4.75 4.75 -
Credit Union North 6.45 - - -
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Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.80 4.95 -
HSBC Premier 5.24 3.54 3.54 3.69
HSBC Premier LVR > 80% - - - -
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HSBC Special - - - -
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Kiwibank - Offset 5.15 - - -
Kiwibank Special - 3.45 3.55 3.89
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.25 4.15 -
Pepper Money Near Prime 5.64 - 5.44 5.44
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Pepper Money Specialist 7.59 - 7.39 7.39
Resimac 4.50 4.86 3.89 3.94
RESIMAC Special - - - -
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SBS Bank Special - 3.39 3.45 3.89
Sovereign 5.30 3.89 4.05 4.39
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The Co-operative Bank - Standard 5.15 3.99 4.09 4.39
TSB Bank 6.09 4.19 4.35 4.69
Lender Flt 1yr 2yr 3yr
TSB Special 5.29 3.39 3.55 3.89
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Westpac 5.34 4.15 4.09 4.49
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Median 5.34 3.99 4.07 4.39

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