Six finance coys miss the cut for guarantee scheme

It appears six finance companies will miss the cut for the government's extension to the retail deposit guarantee scheme and a question mark hangs over the head of a seventh.

Monday, March 1st 2010, 11:20PM

by Paul McBeth

Asset Finance, Avanti Finance, Broadlands Finance, Geneva Finance, NZF Money and Vision Securities have all fallen short of the government's required BB rating from an internationally recognised credit rating agency.

Allied Nationwide Finance, the subsidiary of Allied Farmers which bought Hanover's trouble loan books in a debt-for-equity swap, is still in limbo as the market waits for the release of its rating, which was expected out on Monday.

Until it has a rating it is unable to raise money from the public.

Six finance companies, including Asset Finance, had already flagged that they would not seek entry into the extended guarantee scheme. The other five, Aotearoa Credit Union, Christchurch Emergency Services Credit Union, Mutual Credit Finance, Mutual Finance and Rockforte Finance, were all exempt from requiring a rating due to their size.

That leaves Allied Nationwide as one of the few remaining finance companies without a credit rating, and though the Reserve Bank will not comment on individual cases, a spokeswoman confirmed it will work with "deposit takers to achieve compliance in a timely manner" where appropriate.

"All deposit takers that do not have a credit rating by 1 March 2010 and are not exempt will be in breach of the Reserve Bank of New Zealand Act 1989, and risk enforcement action from the bank," she said. "The bank will assess each particular case of non compliance on its merits, including factors such as materiality and duration of the breach."

The requirement for non-bank deposit takers to hold a credit rating is part of a new prudential regime to give depositors more tools in assessing the safety of their money.

Allied Nationwide chairman John Loughlin said the firm will obtain a credit rating from S&P within the next 24 hours, and will look to secure capital from parent company Allied Farmers to meet the central bank's minimum capital requirements due to come into effect in September.

NBDTs that have fallen short of the extended guarantee's requirements have until October 12 to get their rating up to BB to have a realistic shot of getting entry to the scheme. A spokesman for The Treasury said that though there is a provision for public interest in accepting, a company would need an exceptionally good reason to get accepted once the extended scheme is up and running.

Paul is a staff writer for Good Returns based in Wellington.

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