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How FEI Investments reinvented itself

A low interest rate environment is driving interest in finance company investments as the expense of bank deposits, one New Zealand operator says.

Saturday, 12 November 2016

Banks have warned of a “funding gap” as they struggled to pull in enough deposits to meet customers’ appetite for loans. That has led to increased reliance on more expensive, international backing.

But TK Shim, owner of FE Investments, said finance companies such as his were better placed to attract deposits and were achieving healthy growth.

FE Investments has been operating since 2003 and is a non-bank deposit taker with a focus on lending to the small-to-medium business market.

“We don’t really have trouble attracting depositors,” he said. “We’ve been in the market since 2003 and are one of the few survivors of the GFC so we have a healthy trajectory of deposit growth.”

FEI has total assets of $42 million, he said.

“We don’t have the problem of the banks because our interest rates are higher. Whereas in the bank you might get 3.6% our depositors get 6%. If anything, we’re taking deposits from the banks.”

FEI customers typically invest on secured term deposits of six to 36 months. Shim said that led to a high retention rate, as customers received quarterly or semi-annual repayments providing certainty of income.

Almost all loans have security and about half of that is first-ranking.

FEI reported total comprehensive income for the year to March 2016 of $2.143 million.

Shim said, before the global financial crisis, there were about 70 finance companies competing in the New Zealand market.

After the crash that was cleaned out to a handful – of which FE was one. “If you take the view that the New Zealand economy has expanded – as the rockstar economy of the OECD – there is a dearth of competition for us in meeting that demand.”

Reserve Bank data shows there is more than $2.5 billion invested by New Zealanders in deposit-taking finance companies and almost $15b across non-banks, savings institutions and finance companies.

That compares to more than $332 billion with banks.

Shim said 99% of FEI’s loans had security and 50% to 60% of that was first-ranking.

FEI was put on CreditWatch negative by Standard & Poor’s earlier in the year after it had to restructure its $1.7 million loan to troubled wifi company Tomizone but has since had the B stable rating affirmed.

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