South Canterbury Finance gets BBB - rating

South Canterbury Finance has been given a BBB- rating by Standard & Poor's.

Tuesday, 19 December 2006

The ratings on SCF reflect the company's strong business profile, which is underpinned by its strong market position as one of the largest domestically owned finance companies in New Zealand, and its good geographic diversity. SCF's good profitability track record, sound credit-loss experience, and well-managed funding and liquidity positions also support the ratings. Factors moderating the ratings include reliance on key staff, SCF's small absolute capital base relative to its focus on higher credit-risk lines of business, and moderate quality of capital. In addition, SCF's improving broader risk- management framework remains adequate for the risk profile.

SCF is the main operating entity of a group of 10 finance companies operating throughout New Zealand, with total assets of $1.4 billion at June 30, 2006. SCF is privately owned and was founded in 1926, with covenants contained in the trust deed for secured debenture stock monitored by an independent trustee.

The company is primarily involved in the provision of consumer; plant and equipment; commercial and rural business; and property financing in New Zealand.

"The 'BBB-' rating on SCF reflects its very good business profile and sound underwriting standards that have, collectively, underpinned its earnings profile," said Standard & Poor's credit analyst Derryl D'silva of the Financial Institutions Ratings group. SCF's loan portfolio exhibits elements of higher credit risk, which may introduce some variability to the company's earnings and capital base--particularly if the economic conditions were to tighten. A finance company's risk profile is generally higher than traditional banks, reflecting both an involvement in lending that has higher levels of credit risk and that these portfolios comprise a greater proportion of total loans.

Supportive of its credit risk profile is SCF's growth appetite, which, while moderately high, is focused on business segments that are consistent with management's expertise.

The stable outlook on SCF reflects Standard & Poor's expectation that it will maintain its strong business profile in the New Zealand finance company market, and will progressively extend its geographical reach.

Continued earnings resilience and conservative liquidity management are also expected to support the rating.

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