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Finance coys cut costs, lifted interest margins: KPMG

Finance companies surveyed by KPMG cut costs dramatically and lifted their interest margins by nearly two percentage points in the latest year.

Thursday, December 30th 2010, 11:41PM

by Jenny Ruth


"The subdued economic environment has meant little, if any, earnings momentum and accordingly the area that management have been able to have most impact on has been operating costs," KPMG says in its latest survey of non-bank financial institutions.

The survey now includes only 16 finance companies, down from 31 last year, reflecting the large number of receiverships and KPMG deciding to lift the threshhold for inclusion in its survey to $100 million in total assets from $50 million previously.

Among those 16 companies, operating expenses compared to operating income fell to 45.6% in the latest year from 73% the previous year.

Contributing to this big fall were a number of significant one-offs in the year earlier, including Fuji Xerox incurring a $25 million inter-company service charge and $21 million of commission paid by Motor Trade Finance. GE Money also significantly reduced operational costs, reflecting a re-focus of the business.

"The improvement in overall operating expenses occurred despite finance companies experiencing increased costs related to compliance with the new non-bank deposit-taking regime," KPMG says.

The 16 companies also improved their interest margins by 198 basis points during the year to 5.71%.

"One would need to look back to the year 2000 to see an average interest margin for the sector at this level," the accounting firm says.

"The falling interest rate environment through 2009, combined with a market which has been particularly tight on new lending, has allowed the remaining finance companies to more appropriately price for risk."

However, only 12 of the 16 companies experienced an increased margin with Equitable Mortgages, now in receivership, and NZF Money among those experiencing decreased margins.

Collectively, the 16 companies moved from reporting a $143 million net loss in 2009 to a $162 million net profit for 2010.

Among the better performers were ANZ Bank-owned UDC Finance, whose net profit was up 576%, Custom Fleet NZ, up 229%, Fuji Xerox, up 142% and GE Money, up 119%.

Those showing profit declines were Marac Finance, down 25%, Motor Trade Finance, down 39.5%, and Equitable, down 83.7%.

« Ratings downgrade for Oxford FinanceNBDTs will need 50% more capital than banks: KPMG »

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