22 Feb 2010

Finance industry will shrink, predicts KPMG

7:09 am on 22 February 2010

KPMG's head of financial services is expecting a better year ahead for the finance firm sector, but warns weak lending demand, higher funding costs and tougher rules will see many lenders struggle to survive.

KPMG's Non Banks Financial Institutions Performance Survey found the finance company sector lost $549 million last year, a turnaround from the previous year's $163 million profit.

Under half the 31 firms reported a profit, and only six boosted earnings, though some of that came from consolidation within the industry.

KPMG head of financial services Godfrey Boyce says the main contributor to losses came from soaring bad debt, as another round of falling asset prices affected sales.

He says there is an important place in the system for finance firms to provide second tier financing to businesses, but there's still a lot of work to do for the sector to improve its standing.

Mr Boyce expects the industry to shrink to no more than 15 players, as size and access to capital becomes crucial to long term survival.

He says the new regulatory environment, including the non-bank deposit taking regime with its requirement for credit ratings, reinforces the need for size to support the compliance costs of being a deposit taker.