Strategic calls for industry tidy up

Finance companies shouldn't be waiting for regulation to improve the way they operate, says Strategic Finance chief executive Kerry Finnigan.

Tuesday, 7 August 2007

by Jenny Ruth

In particular, finance companies should be reporting to their investors on the issues that were behind Bridgecorp's failure.

"Liquidity was a big driver. They didn't have enough liquidity. You don't need regulation to tell you that you need to be carrying prudent levels of cash."

Related party lending, a feature of the Bridgecorp group, is another issue the industry should act on.

"It's about time people took a view that we're not going to undertake that kind of activity or when you do, it's going to be of a very minor nature," Finnigan says.

"You don't need a regulator to tell you to behave responsibly."

Among new rules governing finance companies that the government is proposing to legislate on next year are that they will need to be licensed by the Reserve Bank of New Zealand and to obtain and disclose a credit rating.

Strategic is one of a growing number of finance companies that already has a credit rating. It is rated by local firm Risk Analysis as "B1." Risk Analysis says that's the equivalent of "A-" on international agency Standard & Poor's scale. Anything rated "B3" or higher is regarded as investment grade by Risk Analysis.

Nevertheless, Finnigan doesn't think having a credit rating is a cure-all for his industry's faults.

"If people think that a ratings agency is going to be the magic silver bullet and ensure there's no further defaults, I think they're sadly mistaken."

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