23 Oct 2014

Finance company failures 'predictable'

1:01 pm on 23 October 2014

A study has found more than 80 percent of New Zealand finance company failures over a three-year period could have been predicted.

The study, led by Otago University researchers, looked at 31 finance companies that failed between 2006 and 2009, and an equal number that did not fail.

It found that annual reports and other public information at about 88 percent of the companies studied contained warning signals that could now be said to have successfully predicted failure.

The signals included lower capital adequacy, inferior asset quality, more loans falling due and a longer audit lag.

A parliamentary inquiry in 2011 found 45 finance companies in New Zealand have failed since May 2006 with estimated losses of more than $3 billion.

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