Loan Arrangers Abroad

The Age

Wednesday August 2, 2006

MARC MONCRIEF, FINANCIAL SERVICES REPORTER

PERSONAL and car loan providers are expected to continue a booming trade despite increasing bad debts and high petrol prices, a report says.

KPMG's 2005-06 Financial Institutions Performance Survey says spending on bad debts increased 35.3 per cent among the pool of eight finance companies surveyed.

Finance companies spent 0.45 per cent of their assets on bad debts, compared with just 0.21 per cent spent by major banks.

"Any significant decline in credit quality will impact the profitability of the sector due to its greater exposure to unsecured loans," the report says.

Finance companies have injected intense competitive pressures into the lending market, which was previously the exclusive realm of banks. As a result, lenders have cut rates and taken on customers of higher risk to maintain market share.

The report notes that, while bad debts are rising, the rise comes from "an historic low" in the previous year. Results could also be skewed because the survey did not include the largest finance company, GE Money.

"Whilst the companies make up a small percentage of the total financial sector, they may be providing the first indication that the benign credit environment of recent years is coming to an end, especially with further interest rate rises forecast," the report says.

Mortgage Industry Association of Australia chief executive Phil Naylor warned against expanding the report's conclusions to the entire lending industry.

"There's no evidence that there has been a rise in bad debts in mortgages," Mr Naylor said.

"Past experience is that people default on their mortgages because of unemployment or some crisis, not interest rates increases."

KPMG's SURVEY

www.kpmg.com.au/default.aspx?tabid=446

© 2006 The Age

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