Finance companies not all bad says UDC
23 June 2013
The reputation of debenture shares as investment security took a body blow in the wake of the global financial crisis and New Zealand's finance company failures, but UDC chief executive Tessa Price says it's time for investors to think again.
Price said the finance companies that failed were not well managed and in some cases there was fraudulent activity, but that shouldn't stop people from investing in them now, particularly as a new regulatory regime now governs the sector.
Since 2008, the Non Bank Deposit Takers regime has been administered by the Reserve Bank, which has limited related party dealings in finance companies, and imposed capital requirements and risk management practices.
UDC, owned by ANZ, is largely debenture financed by a $1.5 billion investment book, she said. This is backed by a line of credit to ANZ.
And business is good and getting better.
UDC specialises in vehicle and asset finance for farmers, small businesses and the construction industry.
Price said such asset finance is often a leading indicator of how the economy is performing.
If that's the case, things are on the improve.
At the annual Fieldays expo near Hamilton this month, UDC signed 36 commercial deals, compared with just seven last year. Vehicle deals increased 78 per cent.
Not everyone signs up on the spot, though. There are $3.6 million of commercial deals in the pipeline and a further $10m expected in the next couple of weeks.
"Last year wasn't as strong as we'd like," Price said. "This year the sentiment was totally changed."
UDC worked hard to ensure its Fieldays outing was a success, processing pre-approval vouchers for farmers and others intent on going there to buy.
The event also produced good quality leads in agriculture and construction, and new dealer and distributor connections, she said.
"If agricultural dealers are saying they are cautiously optimistic it means the world's on fire - they are very humble and thoughtful."
Tractor and machinery distribution group C B Norwood Distributors is also reporting positive results. General manager Tim Myers said it was an excellent show for Norwood. While he felt overall attendee numbers were down on last year, the number of qualified leads generated was up 20 per cent.
"They were proper leads, not tyre-kickers," he said. "The people that were there were interested in doing business."
Fieldays also saw UDC fielding inquiries from investors wanting to place money in UDC's investment book, mostly over $100,000 and in one case $500,000.
"Last year we didn't see that," Price said.
Price said new lending in the first half of 2013 is ahead of target and 5.4 per cent up on the same period in 2012. Meanwhile, non-performing loans have decreased by 29 per cent year-on-year.
UDC's accounts for that period show interest income was flat at $88.7m but profit after tax increased to $23.8m from $18.7m, largely due to lower interest expense, which fell from $45.4m to $41.9m.