Banking collapse in Australia

Rural savings threatened after collapse

THOUSANDS of farmers and other regional Victorians face a nervous wait after the collapse last night of the financing group Banksia Securities, which has put at risk $660 million in savings.

the Age,

26 October, 2012

Receivers McGrathNicol took charge of Banksia. It is based in Kyabram in the state's north and generates the bulk of its business through that region.

As a non-bank lender, Banksia offers investors high interest on debentures and then lends these funds out as mortgages or commercial property loans.

Given Banksia does not hold a banking licence, the funds in the debentures are not backed by a deposit guarantee.

Debenture firms often target retirees as investors, generating new business through promises of high-interest returns backed by property.

McGrathNicol last night froze the $660 million in investments and stopped all interest payments as it began an urgent review of the company's accounts.

''We are at present calculating the value of your investment to the date of our appointment and will provide those details as soon as possible,'' McGrathNicol told investors last night.

''At this early stage, timing and the amount of any dividend is uncertain and is dependent on the realisation strategy adopted by the receivers and managers,'' it said.

The attempt to claw back funds could cause a credit crunch among some property developers that relied on Banksia for loans.

Big banks have already warned they are taking a tougher view towards commercial property lending, particularly as the economy slows.

Banking major ANZ yesterday warned it had already seen a rise in bad debts in rural and regional areas, and more pain could be felt if commodity prices rebounded from recent falls and pushed the Australian dollar up.

McGrathNicol's appointment was triggered by Banksia launching a review of its lending book.

Early figures from the review presented to the board yesterday indicated a sharp jump in provisions needed to cover bad loans.

The steep losses were likely to lead to Banksia having ''negative net equity'', it told debenture holders ahead of the appointment of McGrathNicol.

At the end of June, loans valued at $65 million made by Banksia were overdue, according to the company's financial accounts. In addition, it had seized property against which it had lent $74.5 million.