Non-bank lenders – building societies, surviving finance companies and credit unions – seem awash with cash as they wait for the world credit crisis to steady and for new Reserve Bank rules.
This affects more than ordinary consumers. It chokes bridging finance for property developers, especially important in regions such as the Wakatipu.
The financial world has saddled these lenders with an acronym – NBDTs, or “non-bank deposit takers”.
While NBDTs have cash, like banks they are super-scrutinising asset quality and project liability of would-be borrowers.
After the epidemic of flaky finance company collapses, ordinary folk are pumping money into NBDTs. Most are flush. At least one temporarily reinvested cash with a trading bank at a lower rate than it pays its own depositors.
Many NBDTs ponder following Southland Building Society into bank status. This is partly because they consider the Reserve Bank’s proposed NBDT rules are harder than those for banks.
The downside is small banks find the going tough and growth slow. The much larger Kiwibank has taken years to grow to a viable size and it’s State-backed.
“It’s a long, hard row,” a NBDT source told BizScene.
Legislation last November requires the Reserve Bank to police NBDTs. Key changes it proposes include mandatory credit ratings from March next year for NBDTs with more than $20 million in assets (originally $10m), minimum capital-adequacy ratios and tighter controls on related-party lending.
NBDT submissions to the Reserve Bank on capital adequacy and related-party rules close tomorrow. Other consultations will follow.
Some NBDTs privately express concern about Reserve Bank proposals to require an eight per cent capital-adequacy ratio, and 10 per cent for those under the $20m threshold. Banks are required to have four per cent of capital in the corresponding Tier One band, though most have more than eight per cent.
The Reserve Bank says weak capitalisation contributed to NBDTs’ high failure rate.
NBDTs’ risk weighting on loans to property developers will be higher than the banks’.
Meantime, how hard is it to borrow?
A finance-industry source told BizScene that a well-capitalised client with a sound opportunity has no problem.
In property, those likely to qualify will have a smaller transaction size – “not big ticket” – and will pay monthly interest, pay down principal monthly and have a sound location with good demand.
BizScene suggested that sounded like only residential property.
Our source said a commercial developer with, say, five lots for three unconstructed buildings with leases, in a “pretty good” location with demand, shouldn’t encounter too many problems.
This lender wants good cashflow, with half the development “sorted” in terms of return and loan serviceability. It also wants the developer to put up a reasonable share of capital.
“Those deals are few and far between,” the source added. “No one knows where property is going to go and the reality is, it’s probably premature for a lot of people to start reinvesting in property.”
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