By Gareth Vaughan
Co-operative financial services provider PSIS hopes to apply to the Reserve Bank for a banking licence next year.
Chief executive Girol Karacaoglu told interest.co.nz that PSIS was hopeful that Standard & Poor's (S&P) would lift its BB+ credit rating to BBB-, the minimum level required to apply for a banking licence, during the first half of 2011. At BB+, PSIS has S&P's highest speculative, or "junk", grade rating whilst BBB- is S&P's lowest investment grade rating.
"Sometime next year we would very much hope to apply for a bank registration," Karacaoglu said. "But it would probably be towards the later part of next year (and) it is totally conditional on us first getting a higher credit rating."
Karacaoglu's comments came as PSIS announced its first Residential Mortgage Backed Securities (RMBS) issue. In an offer managed by Westpac, PSIS has raised $88.5 million as it looks to diversify its funding base. PSIS said the issue was the first New Zealand non-lender mortgage insurance (LMI) prime RMBS transaction to be issued to third party investors. The 487 loans in the loan pool used by PSIS include no low doc loans. The securities were priced at 150 basis points over one month bank bills and carry an AAA S&P rating.
The RMBS issue bolsters PSIS' wholesale funding, but Karacaoglu said PSIS would always be 80-90% retail funded. The co-operative has a NZ$40 million BNZ loan facility and NZ$200 million Westpac warehouse trust facility used to buy mortgages from PSIS.
"This (the RMBS issue) is simply a diversification both on our treasury side and our funding side," said Karacaoglu.
Positive outlook from S&P
In July S&P said it might lift PSIS’s long-term credit rating if the co-operative, which has about 130,000 members, continued to successfully manage its low-risk and sound credit profile through the rest of the year. At the same time, S&P said it was revising its credit rating outlook on PSIS to positive from stable. The credit rating agency also affirmed PSIS' BB+ long-term rating and B short-term rating.
PSIS exited the Crown retail deposit guarantee scheme on October 12, and decided to follow the lead of the banks by not applying for the extended Crown retail deposit guarantee scheme. Karacaoglu said PSIS' reinvestment rates had run at 80-85% ahead of the Crown guarantee expiry.
Meanwhile, Karacaoglu said bank registration wasn't an end in itself.
"It's a means because essentially by registering as a bank you are saying 'I am meeting certain criteria including the higher credit rating.' But our aspiration is to be a cooperative bank," he said.
PSIS had been very encouraged by the Southland Building Society (now SBS Bank) obtaining a banking licence in 2008 and being able to retain its building society status.
"In our case, therefore, we are hoping to register as a co-operative bank. In other words be a bank but still be a co-operative," Karacaoglu said.
PSIS is the second local financial institution hoping to apply for a banking licence next year. Marac Finance, CBS Canterbury and Southern Cross Building Society, who are merging, also aim to apply to the Reserve Bank for a banking licence next year as they strive to create a "Heartland Bank."
The heartland merger partners hope to apply for a banking licence next July. Cameron Partners and Northington Partners' independent report on the merger proposal suggests it could take them up to two years to obtain a banking licence and there is a risk ultimately that it takes even longer, although "it is likely" one will ultimately be granted.
Banking licence application an unclear path
The Reserve Bank itself only says the length of time it takes to process bank licence applications will vary, and the time taken with any specific application will depend on the complexity of the application. It also notes that unsuccessful applicants can reapply. See the central bank's bank registration information here.
Karacaoglu said in the "very long-term", which he defined as four or five years time, PSIS aimed to diversify into small business banking. This would involve providing financial services to owner operated hair dressers, painters, taxi drivers and the like.
"We have lots of member-customers who are doing their personal banking with us but cannot do their hair dresser or taxi or painter business with us because we don't do any of that. So it's really a complement. But beyond that we don't want to go into anything that we don't understand."
PSIS currently does 85-90% of its lending on mortgages and is looking to lift lending to "personal need" areas such as vehicles.
Karacaoglu also reiterated that PSIS was open to merger talks with other financial institutions with its bottom line being the retention of its co-operative status.
"As long as we can protect our co-operativeness, we would absolutely be open to strategic alliances but nothing is cooking at this very moment," said Karacaoglu.
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