SCF related-party lending faces severe prune under draft rules

The draft, put out for submission in December, proposes capping aggregate exposure for NBDTs at 15% of Tier 1 capital. That would require SCF to reduce related party lending to just $14 million from $170 million, according to Forsyth Barr analyst Luke Angus.

Based on the firm's accounts for the first half ended December 31, related party lending soared 165% from six months earlier, with the biggest gain to parent Southbury Group, founder Allan Hubbard's investment arm.

SCF announced a $58 million impairment on non-performing investments and doubtful property assets for the year ended June 30, resulting in a loss before tax of $37 million. Hubbard is injecting $40 million of new capital into SCF and is finalising an underwrite agreement to cover any further impaired loans.

Hubbard is regarded as a key strength for SCF, as evidenced by Southbury's decision to acquire $89.6 million of loans from the firm in the first half. Still, Forsyth Barr's Angus said related party lending "needs to be significantly reduced."