by Jenny Ruth
This shift "in our view will increase the concentration of its credit risk profile," S&P said.
Broadlands is doing a small amount of lending to businesses for their own purposes, such as financing the purchase of plant and equipment.
However, most of its commercial lending is wholesale funding, mostly to car dearlerships and other finance companies which provide vehicle purchase finance, Broadlands' area of specialisation.
Previously, Broadlands' had provided vehicle buyers with finance directly.
The company's current prospectus describes the pros and cons of such lending. "In general, motor vehicle ... loans generate higher returns but also pose greater credit risks," it says.
"This is owing to the value of the assets securing vehicle loans being, in some cases (particularly where the loan is for 100% of the price of the vehicle and no security, other than over the vehicle, is obtained), lower initially than the amount of the loan and the accelerated depreciation of motor vehicles (resulting in the erosion in value of the company's security over time) and the relative credit strength of customers attracted to motor vehicle loans."
This prospectus details how dramatic the shift to providing wholesale finance has been. At August 31, 19.5% of its total lending was such wholesale finance. That's compared to nil at March 31, 2009.
The prospectus outlines how in addition to the security of the vehicles being financed, it also gains the security of "general security agreements granted by the business borrower and/or any guarantor."
While S&P took the view this makes Broadlands' loan book riskier, managing director Rudi Kats says in his view providing wholesale finance is a way of de-risking its loan portfolio.
"I get the loan and the borrower and the car and I have additional guarantees (from the car dealer)," Kats says.
Providing wholesale finance also lessens the administrative burden on Broadlands.
The stance S&P has taken "was terribly frustrating," he says.
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