New Zealand’s newest licensed deposit taker is one step closer to accepting money from investors, but Welcome isn’t quite ready to open the door just yet.
The finance company lodged its product disclosure statement on July 1 with the Disclose Register, aligning with the introduction of the government’s new depositor compensation scheme that covers the first $100,000 of an investor’s money if a bank, credit union, building society or finance company goes bust.
Welcome stuck its head above the parapet earlier this year when it became the first firm in almost a decade to secure a non-bank deposit taker licence from the Reserve Bank, signalling plans to offer better rates on term deposits than banks and to provide first-ranking loans to residential and commercial borrowers.
“Importantly we don’t offer personal loans, vehicle finance, unsecured or SME lending,” chair Tracey Jones said in the offer document. “Every lending decision we make is underpinned by rigorous due diligence and robust financial analysis.”
New Zealand’s non-bank sector accounts for about 0.4% of total lending by the nation’s banks. And while credit unions and building societies have been struggling in the past two years, the Reserve Bank’s May financial stability report noted that finance companies had been growing steadily as they branched out into areas typically eschewed by bankers.
A sneak peek
Welcome isn’t seeking money yet, with the offer intended to open on July 9, and it expects to raise $16 million from the issue of secured deposits.
The major banks are offering an annual interest rate around 3.9% on 12-month term deposits, while finance companies range between 4.5% and 4.8%, whereas the likes of wholesale offerings by property companies such as Wolfbrook dangle a 10% return to eligible investors for a minimum one-year investment.
Meanwhile, Fletcher Building’s listed capital notes maturing in March next year are trading at a yield of almost 8.1%.
Welcome, which counts Hawke’s Bay-based Tumu Group as its majority shareholder, said it will typically loan money for short-term transactions, such as preparing a property for sale, providing bridging finance for a property acquisition, subdividing, building, or improving a property, or to fund a business purchase or expansion.
It said it doesn’t offer personal loans, auto finance or unsecured lending, and will only write business loans if it has a first-ranking security or similar right.
A capital affair
Welcome’s loans are typically for six to 24 months, but it can lend for periods of up to five years. While interest is normally required to be paid periodically, the finance company said it will let interest be capitalised and paid on maturity in some cases.
The finance company’s loans will mainly be funded through secured deposits, but may also be funded through other sources such as shareholder equity or other wholesale sources, including from unrelated third parties.
“We want you to have confidence in us. Our plans are ambitious, but realistic,” Jones said.
Welcome’s lending policies set a maximum 80% loan-to-value ratio for residential property and 70% for commercial, and loan exposures will be limited to 20% of total tangible assets, or $2 million, to a single borrower, falling to 10% from July 2026.
“We anticipate some degree of concentration in our loan book during our initial growth phase while we develop a larger and more diversified portfolio of loans,” the offer document said.
The finance company said it may write construction and development loans, noting those are inherently riskier, but doesn’t anticipate them being a large part of its loan book.
Welcome’s trust deed with supervisor Covenant Trustee Services, requires the financier to keep its capital ratio at 10% of risk-weighted assets, and limit related party exposure to 5%. It plans to keep that exposure at 2% and won’t lend to related parties.
It also has a depositor exposure restriction to 20% of total tangible assets, or $2 million, falling to 10% from July next year, and has agreed with Covenant to ensure its liquidity coverage is always positive for the next three months.
Reporting by Paul McBeth. Image from Andrew Neel on Unsplash.
