Asset Finance gives up Govt guarantee

Whakatane-based non-deposit taker Asset Finance is one of the first to exit the government's deposit guarantee scheme.

Tuesday, 20 October 2009

by Paul McBeth

Feeling flush with cash and confident with its business model, the finance company's managing director Clive George said if it stays in the scheme, it will essentially being paying a premium twice and that remaining under the government's protection will limit its ability to find alternative sources of funding.

"By clearly stating our intention to leave our current scheme and not join the extended scheme, we hope depositors will have better transparency over our strategy and be able to make better informed decisions about the investments they are making," George said. "We've got a sustainable business model, and we know what we're doing."

As more deposits collected by Asset fall outside the guarantee's term, the rationale to stay with it dwindles, he said.

In August, Finance Minister Bill English extended the scheme another 14 months to December 2011, bringing the guarantee broadly in line with Australia's.

The extension to the scheme introduced by the previous administration will put pressure on the least creditworthy finance companies to exit, with a sliding scale of fees based on a company's credit rating.

George said the cost associated with the extended scheme was "significantly higher" than its current fees, even if it achieves the required BB rating from Standard & Poor's.

More finance companies will probably follow suit, and George would not be surprised if some big name companies fail to make the cut.

Still, he is glad the government introduced the scheme, saying it was the right thing to do at the right time, and applauds the way it has been structured to ease companies out of the guarantee.

Asset has arranged for S&P to undertake a credit rating of the company in November to allow it to comply with the Reserve Bank's prudential regime.

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