South Canterbury profit almost halves on bad debts, cash holding costs

South Canterbury Finance reported on Friday its first half profit almost halved because of higher bad debts and the cost of holding cash collected late last year and yet to be lent out. South Canterbury's net profit fell to NZ$13.2 million from NZ$24.4 million in the same period a year ago, while its assets grew to NZ$2.16 billion from NZ$1.84 billion a year ago. "Extended analysis of all new lending proposals has led to a low level of new loan activity with the focus moving to experienced, resilient businesses, particularly in the provinces where trading conditions are more favourable," CEO Lachie McLeod said in a press release. South Canterbury said it increased its provisions for bad debts to 1.54% of gross receivables of NZ$1.54 billion or NZ$23.7 million. McLeod said the level of bad debts were acceptable. South Canterbury said the conditions in the current half year to June 30 remained tough. "The environment will be particularly difficult for the property and business markets in the next 12 months and will require close monitoring," South Canterbury said. South Canterbury lends heavily to businesses buying plant and machinery, and to property owners and developers. "The effectiveness of the economic policies being put in place by government and the lower interest rate regime will be keenly watched by many in business. A great deal of uncertainty is still evident, but there are some encouraging signs and we are hoping the market is close to the bottom of the cycle," McLeod said. He also called on the government to make an early announcement on the future of the deposit guarantee scheme. "˜The finance sector has an important role to play now, and in facilitating growth as the economy recovers. To fully achieve that purpose, the Government can provide certainty by making an early announcement on the future of the deposit guarantee scheme, its extension, and the transition arrangements for its phased removal," he said.  South Canterbury's cash reserves stood at NZ$322 million at the end of December, up from NZ$272 million at the same time a year ago. "Retaining cash reserves gives investors assurance and is prudent at this time but there is a cost which is reflected in the reduced earnings for the period," McLeod said. * This article was first published on Friday in our daily subscription newsletter for the banking and finance industries. The email costs NZ$365 per annum and carries exclusive news and analysis for New Zealand banking and finance industry executives, regulators and investors. Sign up for a free trial here.