S&P expects more finance companies will collapse

In a report on the country's non-bank deposit takers (NBDT), S&P flagged the lack of back-up external liquidity through bank facilities or credit lines as a weakness of many finance companies, and analysts Peter Sikora and Brendan Flynn say they expect more consolidation across the sector.

"The smaller mutual savings institutions, which are facing increasing regulatory and compliance requirements and associated costs, are particularly exposed to sector consolidation as are finance companies where over-servicing remains across some asset classes," the report said. "So far, credit unions have counted for most of the sector's anticipated consolidation while finance companies have seen very few mergers but have counted for nearly all the failures."

The report flags the government guarantee as a major risk for NBDTs in that most debenture stock will mature before the expiry of the initial scheme on Oct. 12, and the "most vulnerable to liquidity and refinancing risks are those not covered by the deposit guarantee through the extension period."