Non-bank sector hopeful of a more profitable year
Even though margin pressure, the Iran war and election year dynamics are weighing on non-bank lenders, they are cautiously optimistic their businesses will improve this year, KPMG’s Specialist Lenders Insights Report shows.
Thursday, April 9th 2026, 6:51AM
by Sally Lindsay
In its first edition of the revamped report, KPMG says even though it was compiled against a rapidly changing global and domestic backdrop, specialist lenders are positioning for sustainable growth through digital capability, customer relationships and targeted product innovation.
Members of the Financial Services Federation (FSF) last year had $22 billion tied up in loans at an average $13,000 loan to 1.5 million clients. This is compared to $20 billion in loans at an average of $10,000 per loan to 1.6 million clients at in 2024.
More than 1.1 million applications were made for loans during the year with a 50% approval rating.
By far, the biggest trance of lending was to businesses at $10.2 billion, followed by $4.8 billion in vehicle finance, $4.7 billion in unsecured consumer loans, $1.8 billion of mortgage lending and $541 million in secured consumer finance.
KPMG says the increase reflects the scale and increasing maturing of the specialist lending sector.
Also helping credibility and trust is the move to naming the sector as “specialist lenders” rather than “non-bank lenders”. The consistent message is the sector is not well understood and needs demystification, with 87% of lenders saying more needs to be done to change perception.
Lenders, however, acknowledge that advocacy for the sector can be challenging given the diverse range of businesses operating within it, from insurance and leasing to consumer and commercial lending.
Continued resilience
Although last year was challenging 81% of lenders had an increase in lending volumes, which translated into 75% having an increase in net profit after tax, indicating continued earnings resilience across much of the sector, with 53% having growth of more than 10%, highlighting efforts to diversify revenue streams and 79% at the same time reporting an improvement in net interest margins through effective repricing and yield management strategies.
This was achieved despite higher funding and operational costs with 65% of lenders saying their funding costs had increased.
After several tough years in the economy, 63% of lenders had an increase in impaired loans, consistent with FSF’s data showing 5.9% of the book in arrears, the highest in the past five years.
Centrix data also shows consumers falling behind on payments, with personal lending arrears reaching a 10-year high and 45% of financial hardships linked to personal loans, primarily affecting non‐homeowners who have not benefited from interest rate relief.
Priorities
The burning priorities for the sector are technology transformation at the top of the list and cited by 94% of lenders, while nine in 10 respondents placed it in their top three, followed by sustainable growth by 82%, AI and cyber security by 71%, capital funding deployment by 65% and complying with regulation by 59%.
The report shows technology transformation is moving from being a standalone investment focused on technology risk reduction and instead is seen as the platform for growth, operational efficiency and enabling longer-term adaptability for both customers and regulators.
Specialist lenders are stepping into technological advances as customers continue to demand more seamless and “one tap” experiences.
AI is seen as an opportunity more than a challenge. All lenders say they are investing in AI capability over the next 12 months, with only 12% saying they are reluctant to use AI, given the perceived risk with data breaches.
Lenders see AI as an enabler, often layered onto existing transformation programmes. The greater challenge lies upstream, in data quality, governance and core technology readiness, which consistently rank higher than AI itself.
As far as fintech partnerships go, lenders see them as largely “lower order”, but this is expected to become a more important as open data and the use of third-party vendors to enhance the customer experience and speed of decision making becomes the norm.
Open banking
The cost of implementing open banking infrastructure is significant and KPMG says nationally a conversation needs to be had about how this can be done in a cost‐efficient manner (e.g. utility structures) to ensure all consumers have access to the latest innovative services.
A key concern is the possible slow uptake of open banking by consumers, which may limit the immediate commercial value for many lenders. This is a commonly held concern when the sector and consumers reflect on overseas experience.
For the sector, this points to telling customers about the clearer value open banking gives and making sure there are proportionate regulatory settings to help unlock its benefits in a way that supports competition, efficiency and sustainable growth.
Almost a quarter of survey respondents see open banking as a significant opportunity
for the sector but stressed the need for legislation that is targeted and practical.
There is concern that poorly scoped or overly prescriptive requirements could raise implementation costs and slow adoption, rather than enabling the innovation and competition that open banking is intended to support.
Regulatory regimes designed primarily with large banks in mind can have unintended consequences when applied uniformly to smaller or more niche lenders, increasing compliance burden without delivering commensurate risk reduction and in some instances reducing customer access to safe credit.
Funding and regulation
Survey respondents identified funding and regulatory settings as another of the most critical levers for growing specialist lenders’ market share.
Reducing the cost of funding emerged as the leading driver, cited by nearly a third of respondents (32%), underscoring the ongoing margin pressures facing the sector and the importance of efficient capital structures.
Access for some sector participants to the RBNZ Exchange Settlement Account System (ESAS) will help in this area, alongside strong fundamentals that underpin continued wholesale and securitised funding access.
That said, the FSF says the recommendations in the Finance and Expenditure Committee Inquiry into Banking Competition did not go far enough to enable competition in the specialist lending sector. In particular, access to funds will continue to be an inhibitor for the sector in terms of growth.
This was followed by an ongoing call for regulation that is more targeted and proportionate to the specialist lending sector (26%), reflecting concerns that a one‐size‐fits‐all regulatory approach may constrain growth and innovation.
Nearly half of respondents identified the need for greater differentiation within regulatory frameworks. This reflects a view that a “one size fits all” approach can disproportionately impact smaller or specialist lenders, limiting their ability to compete and innovate, while not materially improving consumer outcomes.
The FSF also says the introduction of further levies to the industry, such as the new Anti‐Money Laundering and Counter Financing of Terrorism levy or the Depositor Compensation Scheme levy is another burden on growth.
It believes this work should be funded by the proceeds of crime fund as opposed to levying those that are already bearing the cost of compliance.
Marketing and advocacy
Increased awareness, marketing and industry advocacy (21%) was also highlighted as a key opportunity, reinforcing the view that the sector remains under‐recognised relative to the value it provides.
This needs to reinforce the inherent flexibility of specialist lenders which is a core competitive strength for the sector, enabling them to respond to complex and underserved customer needs where traditional lending models are less effective.
That agility and flexibility to respond and anticipate customers’ demands and needs will again contribute to the growth of the sector.
KPMG says this is evident through the ambitious plans many of the sector have to expand their products, responding to a wider range of customer needs, with a strong focus on improving the overall user experience along the value chain.
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