South Canterbury Finance had taken a conservative stance on its lending, using the six months ended December to consolidate and build a platform for future business, chief executive Lachie McLeod said.
The finance group on Friday reported a sharply reduced profit for the period of $13.2 million, compared with $24.4 million in the previous corresponding period.
However, total assets increased to $2.2 billion from $1.8 billion and cash in hand was up 18% to $322 million.
Loans and receivables rose slightly to $1.5 billion.
Net equity remained strong at $249 million.
"Extended analysis of all new lending proposals has led to a low level of new loan activity, with the focus moving to experienced, resilient businesses, particularly in the provinces, where trading conditions are more favourable," Mr McLeod said.
More than half of South Canterbury Finance's assets were now outside the main centres.
During the six months, the group enjoyed a strong inflow of new funds and a solid reinvestment rate, he said.
That was further boosted when the company entered a deed of guarantee with the Government, providing qualifying investors with a government guarantee for a two-year period.
Retaining cash reserves gave investors assurance and was prudent in these times.
But there was a cost, which was reflected in the reduced earnings for the period.
The lower profit was principally due to the holding costs of large cash reserves, lower lending activity and fee income, and a rise in bad debts and provisioning.
"The level of bad debts remains very acceptable in today's environment."
Looking forward, Mr McLeod said conditions in the current half-year remained tough.
The environment would be "particularly difficult" for the property and business markets in the next 12 months, and would require close monitoring.
The group had a large portion of loans to the business, plant and property sectors.
In a further precautionary move, provisions for bad debts were increased to 1.54% of total receivables.
South Canterbury Finance would maintain a cautious stance on new lending and focus on improving the quality of its assets.
"The finance sector has an important role to play now and in facilitating growth as the economy recovers. To fully achieve that purpose, the Government can provide certainty by making an early announcement on the future of the deposit guarantee scheme, its extension and the transition arrangements for its phased removal."
