Kiwibank steps into finance company void with Kiwi Asset Finance, won't rule out tilt at SCF assets

By Gareth Vaughan

State owned Kiwibank, which has the taxpayer providing an emergency "uncalled capital facility", is expanding into the finance company space where dozens of companies have failed over the past five years.

Kiwibank has launched Kiwi Asset Finance, to provide vehicle, plant and equipment loans. Kiwibank already provides personal loans through consumer lender GE Money and motor vehicle loans through Marac Finance, now part of the Combined Building Society which aims to become "Heartland Bank."

Kiwibank spokesman Bruce Thompson said Kiwi Asset Finance had been registered but no appointments had yet been made to the business. He said it was a plant and equipment financing company with no link to GE Money.

"It is a wholly owned and wholly funded subsidiary of Kiwibank Limited," said Thompson.

Although there were objectives and strategies for the new finance company, Kiwibank was not yet in a position to publicise these, he added.

The Government last August agreed to a request from Kiwibank's parent New Zealand Post to provide an uncalled capital facility valued in the "low hundreds of millions" of dollars to the group to help maintain its AA- credit rating and enable Kiwibank to continue expanding.

The launch of Kiwi Asset Finance comes after KPMG predicted late last year that banks may look to fill gaps in the market for property development financing, financing the bottom end of the used car market and the financing of assets such as bulldozers and trucks. These gaps have developed over the past five years as dozens of finance companies and other entities have collapsed putting NZ$8.59 billion of investors' money at risk. See our Deep Freeze List for full details.

KPMG audit partner John Kensington told interest.co.nz in December that other banks might look to follow the example of ANZ which owns UDC Finance, Kensington, whose firm isn't Kiwibank's auditor, noted Westpac used to own finance company AGC, which it sold to GE Money for A$1.6 billion in 2002, and BNZ had a business called BNZ Finance which it pulled into its commercial division.

"The question is will one of them try to acquire something else, like South Canterbury Finance, and do that growth quite quickly or will they just keep to their current approach to life which is steady as she goes. I think undoubtedly at some point whatever's in that South Canterbury Finance book will  be sold to somebody," said Kensington.

"Maybe one of the other banks, who don't have an operation like UDC or have it too closely entwined in the bank where everything's secured over property and they perhaps don't want to lend over income earning asset, I would suspect that maybe some of those other (bank) players may emerge (in the finance company space)."

South Canterbury Finance's receiver McGrathNicol put the failed Timaru-based lender's subsidiary Face Finance, which specialises in plant and equipment finance for the road transport, aviation, earth moving and construction sectors from Auckland and Christchurch operations, on the block last week. McGrathNicol's first receiver's report noted Face Finance had total loans net of impairment provisions worth NZ$196.9 million, total assets of NZ$205 million and total liabilities of NZ$196.8 million leaving net assets of NZ$8.2 million. Face Finance was fully funded by South Canterbury Finance.

Asked whether Kiwibank might bid for Face Finance, Thompson said the state owned bank "will look at South Canterbury Finance assets in line with the fact we look at all possible assets and acquisitions in the market.”

UDC is the country's biggest finance company and provides asset finance for plant, equipment and vehicles. UDC raises money from the public, including through debentures, and has a NZ$800 million loan facility with parent ANZ that was NZ$450 million drawn as of September 30 last year. UDC had secured debenture stock worth NZ$1.38 billion on issue as of September 30.