RBNZ expects failures among guaranteed finance companies
The Reserve Bank expects there will be some failures in finance companies covered by the government's deposit guarantee scheme as they come to grips with new prudential requirements due to come in next year.
Wednesday, November 11th 2009, 6:37PM
by Paul McBeth
Assistant Governor Grant Spencer said in a statement that many of these financial institutions are under pressure to repair their damaged balance sheets. Not every company will be able to successfully raise capital, according to the bank's Financial Stability Report.
"The non-bank sector is now also faced with the challenge, over the coming year, of meeting the requirements of the Reserve Bank's new non-bank prudential regime," Spencer said. "In meeting these challenges, we fully expect to see further rationalisation and closures."
The central bank said it will begin consultation with the non-bank deposit taking (NBDT) sector this quarter after cabinet approved its proposed regulations in September, though the final version has yet to be released. Governor Alan Bollard last month told a Parliamentary select committee that the new regime will be to avoid the pitfalls of the past few years rather than rectify them.
Under the regulations, NBDTs will have to have a credit rating issued by Standard & Poor's, Moody's Investor Services, or Fitch Ratings, and will have to keep an 8% minimum tier 1 capital ratio.
NBDTs are being given until Sept. 1 next year to adjust their operations in order to comply with the new requirements, when they will become binding, the report said.
The report found savings institutions such as credit unions and building societies were better capitalised than finance companies and had less exposure to under-performing sectors such as property development.
Paul is a staff writer for Good Returns based in Wellington.
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