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Pyne Gould's Marac Eyes Lower Funding Costs In Banking

Fuseworks Media
Fuseworks Media

Wellington, Feb 26 NZPA - Pyne Gould Corporation said a banking licence for its finance subsidiary Marac will give it a lower cost of funding.

The company is focusing on raising Marac's credit rating a notch to investment grade, which is needed for a bank licence.

"From a funding perspective a bank licence gives us greater certainty of funding and a lower cost. Being a bank also means you have to apply less capital to your business," said chief executive Jeff Greenslade.

A bank lending $100 was required to have $8 of capital but under new regulations for non-banks the criteria for capital was higher. A non-bank will have to $24 of capital for every $100 lent on a property development. Loans on equity investments by non-banks will a have 600 percent capital requirement, while banks will have a 100 percent capital requirement.

Marac Finance reported a net profit before tax for the six months to December of $8.2m, after including a one-off $3.3m pre-tax provision for a previously announced loan irregularity.

Pyne Gould Corp returned to profitability, with a net profit of $10.1 million in the six months to December after a $17m loss a year earlier when the result was affected by several one-off items. It is targeting a net profit after tax of $21m for the full year.

The company owns 18.3 percent of rural services company PGG Wrightson as well as Marac and Perpetual Group.

During the half-year, Pyne Gould raised $272.5m in new capital from existing and new shareholders to strengthen its balance sheet and put new governance and leadership into the wealth management business it is looking to expand.

Marac increased motor vehicle lending by 27 percent year-on-year and is eyeing small business lending as a growth area. It has a strategic alliance with AA and also with Kiwibank.

"Our strategic objective is to establish a banking and wealth management business," said Mr Greenslade.

Perpetual Portfolio Management provides wealth management products to the retail market.

"We need to develop a fully diversified portfolio investment suite and that is under way," Mr Greenslade said.

"We have 34,000 clients in Marac that are currently borrowers, but eventually they will provide a pipeline of savers," he said.

A key part of getting the banking licence was to return to an investment grade rating. Marac had a BB plus rating with a negative outlook with Standard & Poor's and it needed to move up one notch to BBB minus to be investment grade.

A change in outlook on the rating could occur at any time, while a change in the rating could occur at an annual review. There was an annual review in August.

The company already lent to small business for capital equipment and alliances would help it extend its reach into the small business market.

The company is also generally targeting the middle income market.

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