Marac Finance profit rises despite blip in loan losses

Marac Finance has posted a 5% increase in annual net profit to NZ$25.9 million despite a quintupling of provisions for loan losses from extremely low levels. Like fellow diversified financier South Canterbury Finance, Marac Finance has a BBB minus investment grade credit rating from Standard and Poor's. It also meets all 5 of our 5 Survivability Factors, having diversified funding, diversified lending, a strong NZX-listed corporate backer in Pyne Gould Corp, an investment grade credit rating and funding lines from local banks. Marac Finance said net profit rose 5% to NZ$25.9 million despite its impaired asset (loan) expenses rising to NZ$5.7 million from NZ$1 million a year ago. However, Marac said it was not exposed to the property development sectors in Queenstwon and Taupo and its arrears rate remained at around 0.5%. It said it had made only one property loan this year and none of its property loans were in default. Most were to commercial and industrial buildings or involved committed pre-sale agreements where no buyers had reneged on their agreements. Here is the full press release below. A more detailed presentation is available here.

MARAC Finance Limited achieved a net profit after tax of $25.9m, an increase of 5%. Net operating income rose 17% to $70.2m. Operating costs to net operating income at 37% were up marginally on last year. "MARAC Finance's result was particularly pleasing against a backdrop of the wider finance sector performance and global and local credit market conditions" said Brian Jolliffe, Managing Director. On the funding side the focus was on continuing to strengthen and diversify MARAC Finance's funding sources and increase liquidity. MARAC Finance's investment grade credit rating from Standard & Poor's was reconfirmed. While investors generally have become more reluctant to invest in finance company offerings, MARAC Finance's reinvestment rate was maintained at normal historical levels of around 63% in the year under review. The securitisation programme which commenced in August 2007 has provided a new funding facility of NZ$300m. A new syndicated bank facility of NZ$480m with all of New Zealand's major banks was finalised, an increase of $80m on previous individual facilities. After balance date a 5 year secured bond program raised $104.2m providing greater diversification and increasing liquidity further. "MARAC Finance's liquidity was $250m at 31 July 2008. This is a much higher level than the company traditionally holds but in the current difficult market environment is considered to be a prudent step" Jolliffe said. On the lending side, total financial receivables rose 8% to $1.3bn. This is a slower growth rate than in previous years and all occurred in the first half. In the second half of the year MARAC Finance focussed on meeting the needs of existing clients and foregoing some growth opportunities. Finance receivables continue to be well spread both regionally and also by the type of asset financed. Installment loan arrears to total receivables remained relatively constant at 0.5%. Collectively impaired assets, which are assets with an increased risk on collection, increased from 8.1% to 11.7% of total finance receivables. Individually impaired assets, being those which the company believes will not be collected in full, amount to 1.6% of total finance receivables and are fully provided for. Impaired asset expense was $5.7m in the current year compared to the low $1m in the corresponding period last year.