The Reserve Bank yesterday introduced new rules for deposit-taking finance companies, building societies and credit unions aimed at restoring investor confidence in a badly damaged finance industry.
The new rules come into force on December 1 and could mean some smaller finance companies deciding to close their operations.
Reserve Bank deputy governor Grant Spencer said that under the regulations, deposit-taking finance companies, building societies and credit unions would be required to maintain a minimum capital ratio and to limit the amount of credit they could provide to related parties.
In particular, deposit takers' minimum capital ratios must not be less than 8% if the deposit taker had a credit rating and not less than 10% without a credit rating.
Deposit takers' limits on aggregate exposures to related parties must not be more than 15% of their capital, he said.
The new regulations also reiterated the type of credit rating deposit takers with liabilities of more than $20 million must have.
That requirement had been in force since March 1.
Mr Spencer said the governance requirements for deposit takers in the Reserve Bank Act would also come into force on December 2.
From that date, most deposit takers would need to have two independent directors and a non-executive chairperson.
"Overall, the regulations will serve to improve investor confidence as well as promote improved risk management by deposit takers," he said.
Craigs Investment partner Chris Timms said the greater openness would put the non-bank deposit takers on a more bank-like footing.
"This will give more transparency, greater credibility and greater investor confidence in a sector which has none."
More finance companies were likely to fall by the wayside once the Crown guarantee ran out, he said.
The smaller ones would not be able to survive the liquidity rules and, in some cases, the inter-party lending.
Inter-party lending was when a director or an employee received loans from the company for which they worked.
That could mean less than 10 finance companies operating in New Zealand by the end of next year, but the new rules would mean the investing public could have more confidence in the sector, Mr Timms said.
Finance companies played a major role in the economy, particularly in the lending of mezzanine finance for things like property development.
