Asset Finance Limited receives Reserve Bank warning Industry Notice
The Reserve Bank is reminding the deposit taking sector of the obligations deposit takers have under Part 5D of the Reserve Bank of New Zealand Act 1989. It does this after sending a warning to Asset Finance Limited for failing to comply with the legal requirements concerning related party exposures. These legal requirements state that the aggregate credit exposures of a deposit taker, or its borrowing group, must not exceed a maximum limit of 15 percent of capital. This 15 percent limit was exceeded in the case of Asset Finance Limited.
Related party transactions played a significant part in the finance company failures that have occurred since 2006. The requirements that are now in place are vitally important in terms of limiting the harm that can arise from such transactions. While such harm has not eventuated in the case of Asset Finance Limited, related party exposures can be detrimental to the interests of investors.
The Reserve Bank warns the deposit taking sector to be mindful of these obligations and the other prudential obligations under Part 5D of the Act.