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FIPS Non-bank: Review of 2019

FIPS Non-bank: Review of 2019

Non-bank financial sector experiences 16.49% profit rise

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FIPS Banks: Review of 2019

Over $324m in profit reflects another strong year for the non-bank financial sector, reveals KPMG’s Non-Bank Financial Institutions Performance Survey (FIPS) 2019. Net profit after tax (NPAT) increased by 16.49% ($45.87 million) over the year resulting in a total NPAT of $324.01 million.

The review surveyed 24 of New Zealand’s non-bank financial institutions, revealing key industry trends and providing analysis of the sector’s performance to September 2019.

The result was largely driven by the 19 basis point increase in the sector’s net interest margin and strong loan growth (9.32%) as more customers come to the sector. Other drivers include an increase in net interest income (up $116.78), lower non-interest income (down $24.34m), increases in impaired asset expense of $5.82m and operating expense of $24.68m and tax expense of $16.07m.

“What we’ve seen is the margin increases being helped along by a reduction in funding costs, so a strong year as a sector, parts of that sector performing stronger than average and others a little flat,” says John Kensington, KPMG’s Head of Banking and Finance.

Increased regulatory and legislative change

2019 has seen a continuation of increased regulation across the sector. While there is no opposition to regulation in general, there is a sense that existing regulation should be enforced more so, and proposals for new regulations should undergo more thorough consultation. 

“Nobody objects to the thought process behind the regulation, but it has been rushed, there’s not enough time for people to make submissions, and when it is implemented, there are some unintended consequences,” says John.

Buy Now, Pay Later disrupting the market

Buy Now, Pay Later (BNPL) service providers have been the most visible catalysts for disruption within the personal finance sector, with over 228,000 customers signed up to these services and over 1,200 merchants offering BNPL services. However, these providers continue to operate outside of the regulatory regime as they aren’t bound by responsible lending principles.

“Buy Now, Pay Later providers are probably the biggest disruptor that was new in the survey this year, they are definitely an attractive product, particularly for millennials,” says John. “They love it, because they can get something now and then take their time to pay for it, they’re not incurring credit.”

These schemes have had a huge impact not only as a natural competitor to other players in the market, but also in the way they impact an individual’s capacity for further borrowing. Buy Now, Pay Later providers appear to be targeting the most at-risk borrowers, with a focus on the retail market. This in turn may limit borrowers ability to obtain more traditional loans as other needs arise, such as car repairs.

Other disruptors

Other disruptors have included new entrants from Australia, such as Prospa, Pepper and Payright. With interest rates low and the economic environment benign, it has been a stable period to enter the market.

In a year with business confidence has been down and unemployment and interest rates low, reduced funding rates have seen term deposit rates become less enticing to investors, resulting in some looking for yield elsewhere. This has been an ideal environment for new entrants to dip a toe in the water.

An increase in consolidation

2019 has seen also an increase in consolidation for the sector. Avanti Finance purchased Branded Finance, Credit Union Baywide merged first with three other credit unions and then consequently with Co-Op Money. To see that much aggregational merger in the sector is unusual.

Other key insights

This year’s review also includes insights from Kate Stewart and Quinn Ooi of KPMG on conduct, Lyn McMorran of the Financial Services Federation on regulatory change and Ben Speedy of CoreLogic on mortgage lending in the non-bank financial sector.

© 2020 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.

KPMG International Cooperative (“KPMG International”) is a Swiss entity.  Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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