'Bank' or 'Finance Company'?
What is the difference between a bank and a finance company? The quick answer is, those that hold banking licences are banks. But this is not a very useful answer. I want to know how the underlying loan book differs. This is a question that is impossible to answer, because different finance companies have different areas of business expertise.
But what would happen if you were a bank (ANZ) that bought outright a finance company (UDC) as far back as 1980? That would be enough time to reorganize things. You could steer your bank style business towards "ANZ New Zealand", and steer the 'finance style business' towards "UDC". After 33 years, how does the respective break down over the business sectors look for both?
SNOOPY
ANZ.NZ Loan Book Industry Funding Concentration FY2013
Quote:
Originally Posted by
Snoopy
What is the difference between a bank and a finance company? The quick answer is, those that hold banking licences are banks. But this is not a very useful answer. I want to know how the underlying loan book differs. This is a question that is impossible to answer, because different finance companies have different areas of business expertise.
But what would happen if you were a bank (ANZ) that bought outright a finance company (UDC) as far back as 1980? That would be enough time to reorganize things. You could steer your bank style business towards ANZ New Zealand, and steer the 'finance style business' towards UDC. After 33 years, how does the respective break down over the business sectors look?
From the ANZ New Zealand statement to the reserve bank on 30th September 2013, page 46, the loan book break down is like this:
ANZ (New Zealand) Loan Book FY2013 |
|
Agriculture |
$18,842m |
Forestry, fishing and mining |
$1,850m |
Business and property services |
$11,334m |
Construction |
$1,748m |
Entertainment, leisure and tourism |
$1,389m |
Finance and insurance |
$18,412m |
Government and local authority |
$9,910m |
Manufacturing |
$5,051m |
Personal lending |
$63,492m |
Retail trade |
$2,859m |
Transport and storage |
$2,147m |
Wholesale trade |
$2,704m |
Other |
$4,577m |
Total |
$144,315m |
UDC is a wholly owned subsidiary of ANZ New Zealand. So what we need to do is subtract out the UDC figures from those listed above. Then we can compare the loan book make up of 'Underlying ANZ New Zealand' with UDC.
SNOOPY
UDC Balance Sheet Impaired Loan Percentage FY2013
Quote:
Originally Posted by
macduffy
Those relative percentages are pretty much as we would expect. As you note, finance companies aren't into house loans but are big financiers at the property development end of town - or at least were when that was a big thing! They also do a big business in financing the transport and logging industries, earth moving, farm machinery etc. Their personal loans cater to a generally lower security sector so we wouldn't expect them to compete directly with the banks.
What the figures don't tell us so clearly is the quality of the respective loan portfolios but of course a fair idea of this can be gleaned from write offs and provisioning from year to year.
Frankly I am surprised how high the provision for loan impairment is at UDC (page 33 UDC 2013 prospectus). Granted it has been reducing since the depths of the GFC.
From note 8, with reference to the whole EOFY2013 loan book:
$37.460m / ($2,241.110m+$37.460m+$131.094m+$7.439m) = 1.55% of gross value loans on issue
The figures for ANZ New Zealand, suitably disentangled from UDC are (using note 13: 'Net Loans and Advances' based on ANZ New Zealand's September 30th update to the Reserve Bank)
($826m-$37m)/ ($91,543m -$2,103m) = 0.88%
Compare that to Heartland (HNZ AR2013 p39)
$50.491m/ $2,060.867m = 2.45% of gross value of loans on issue.
Of course we all know that UDC isn't a 'real' finance company, even to the extent that they don't have to keep the Reserve Bank updated on their financial position. As long as the parent ANZ New Zealand (who have full control of the UDC purse strings) keeps their own disclosure up to date, the UDC are off the radar as far as the Reserve Bank of NZ is concerned. In practice UDC are simply a 'marketing arm' of the ANZ.
SNOOPY
ANZ.NZ Loan Book Classification FY2013
Quote:
Originally Posted by
Snoopy
Frankly I am surprised how high the provision for loan impairment is at UDC (page 33 UDC 2013 prospectus).
On page 40 of the ANZ NZ September 30th Reserve Bank disclosure, there is a table listing the class of loans (0-9) , along with their probability of default. '9' is default, so the probability for a grade 9 loan defaulting is 100%. However of more interest is the other grades of loan and their probability of default.
|
For retail mortgages: |
Grades 0-3: |
0.2% |
Grades 4: |
0.46% |
Grade 5: |
0.93% |
Grade 6: |
2.11% |
Grade 7,8: |
5.4% |
|
For other retail: |
Grades 0-2: |
0.1% |
Grades 3-4: |
0.29% |
Grade 5: |
1.12% |
Grade 6: |
2.67% |
Grade 7,8: |
11.25% |
Allowing for the fact that the grading groupings do not quite match up grades 0-6 are surprisingly similar. It is the loans in category 7 and 8 that are twice as likely to default in finance companies, given that in general finance companies have very low (or no) exposure to retail mortgages.
SNOOPY