Building societies join to say they're not finance companies

Five of New Zealand's biggest building societies have teamed up with financial cooperative PSIS to set up an association that promotes their strength and history as savings institutions and distances them from the turmoil in the finance company sector. The newly created New Zealand Savings Institutions Association includes CBS Canterbury, Heretaunga Building Society, Nelson Building Society, PSIS, Southern Cross Building Society, and Southland Building Society. Combined, they hold assets of around NZ$5 billion that are owned by 300,000 New Zealanders. "We are not finance companies, involved predominantly in high-risk lending," said Ross Smith, who chairs the association and is CEO of Southland Building Society. "Our member savings institutions each have strong governance, ethical standards, liquidity, reserves and asset base, we source our funding largely from retail deposits, on terms generally ranging from call deposits to three-year term deposits, and our lending is primarily first mortgage property lending over property in New Zealand. Personal (unsecured) lending is very limited. The members all have a diverse range of other funding options in place including: retail funding; committed and uncommitted bank lines and some have securitisation facilities," Smith said. The association promoted the strength of its members by acknowledging that the building societies have survived the depressions and stock market crashes of the past 100 years. "The association's members have a history in New Zealand that cannot be matched by any other group in the financial services sector," said Smith. Despite distancing themselves from the troubled finance company sector, there are still some similarities between the two. Building societies generally borrow short and lend long, as did many finance companies, and most lending is against residential property. Many of the failed finance companies and mortgage trusts in our Deep Freeze list were stung by lending to residential and resort property developers, although many also lent to property investors. If included in our Five Survivability Factors table, building societies would generally only qualify for one or two factors. None of the building societies have investment-grade credit ratings from either Standard & Poor's or Moody's, although Southland Building Society has a BBB investment grade rating from Fitch.