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NBFIs

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1 views7 pages

NBFIs

Uploaded by

ahmedxd880
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CHAPTER 15

Nonbank financial institutions

Prepared by Erkan Yalcin


University of Adelaide
Nonbank financial institutions in
Australia
• Nonbank financial institutions include:
– Building Societies specialise in making L.T. mortgage loans.
– Credit Unions specialise in short-term consumer loans.
– Finance Companies specialise in consumer & business loans.
Permanent building societies

• Building societies are authorised deposit-taking institutions


(ADIs).
• Building societies have operated in Australia since the 1850s.
• Building societies are regulated by APRA.
• Building societies are regulated in the same way as commercial banks.
• Sources and Uses of Funds
– Assets: The majority of building society assets are residential mortgages.
– Capital: Profits transferred from yearly profits and accumulated over time
within the business rather than being paid out as dividends.
– Income and Expenses of Building Societies: The main source of income for
building societies is interest income.
Credit unions

• Credit unions, like building societies are ADIs and are regulated primarily by
APRA.
• Credit unions first appeared in Australia in the 1940s.
• Credit unions are credit cooperatives owned and operated by their members.
• Credit unions tend to focus on consumer lending.
• They are regulated by APRA in the same way that commercial banks are
regulated.
• Credit Union Assets, Liabilities and Capital
– Assets: consist mainly of loans to members.
– Liabilities: consist mainly of member savings accounts.
– Capital: credit unions do not hold shareholders’ equity and, therefore,
capital consists mainly of retained earnings.
Finance companies

• Companies that raise funds from wholesale markets and retail investors and
then provide loans to households and small to medium-sized enterprises.
• Unlike building societies and credit unions, finance companies are not ADIs.
• Finance companies have more diverse interests than building societies and
credit unions.
• Finance companies specialise in consumer finance and leasing but they also
deal in many of the same products as banks, building societies and credit
unions.
• Regulation of Finance Companies
– Historically, finance companies were not rigorously regulated.
– The primary regulator of finance companies is ASIC.
Finance companies cont’d

• Types of Finance Companies


– Captive Sales Finance Companies Finance companies that finance goods
sold by their parent companies. Captive sales finance companies that are
subsidiaries of major retailers and car manufacturers.
– Niche Finance Companies Finance companies that specialise in a particular
type of finance product.
– Payday Lenders Finance companies that offer very short-term loans at
exceedingly high interest rates.
– Debt Consolidation Companies Finance companies that target individuals
with excessive levels of personal debt or those with several different loans,
then consolidate these debts into one loan that is easier to manage or has
a lower principal repayment than the individual debts when combined.
Finance companies cont’d

• Business Credit
– Finance companies also engage in business lending. Types of Business Lending:
• Wholesale Financing The process by which a finance company helps a dealer
finance the purchase of goods.
• Retail Financing or Floor-Plan financing financing of inventory available for sale
for retailers of large-cost, low volume items & the finance company pays the
manufacturer when the goods are delivered to the dealer.
• Lease Financing Many finance companies have rapidly expanded their leasing
activities in recent years. Leasing often provides greater tax advantages,
protection of ownership rights and financial flexibility or convenience.
• Factoring: Factoring is the purchase by a finance company of a business firm's
accounts receivable.

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