Seven years after the collapse of Westpoint, Australia’s shadow banking system is showing no signs of improvement as it lurches from one crisis to the next

August 13, 2013 Leave a comment

Revealed: $1bn of savings under a shadow as debenture firms snub capital buffers

Published 13 August 2013 10:15, Updated 13 August 2013 10:58

James Frost

Seven years after the collapse of Westpoint, Australia’s shadow banking system is showing no signs of improvement as it lurches from one crisis to the next. Over the last 12 months non bank lenders worth more than $1.1 billion have collapsed, been sold or frozen after troubles at firms including Victorian group Banksia – crippling the savings and retirement plans of thousands. What’s even more disturbing is that thousands more investors remain at risk as the companies that run these high risk schemes thumb their noses at universally accepted benchmarks.Following an investigation by Smart Investor we can reveal close to another billion dollars of Australian savings remains invested in woefully under capitalised debenture companies.

Six companies holding at call and term deposits worth $533 million – Hargraves Invest, Central Victorian Investments, Sewells Finance, Winsec, Turner Securities and W&D Finance – have capital buffers of less than half the recommended level.

Another three companies offering similar investments worth $447 million – Angas Securities, Balanced Securities and Vic State Savings – have astonishing levels of arrears and past due loans, as high as 71 per cent in one case.

Despite the state of their books these companies are still able to attract funds from the regional bases from which they operate, attracting investors with comparatively high rates of interest and a misguided sense of community.

As recently as last month residents of the Victorian township of Sale were sent into a spin as Gippsland Secured Investments was forced to confront a rapidly deteriorating loan book and freeze more than $150 million of investor funds.

But in a cruel twist a long awaited crackdown on the sector and a proposal for tough new minimum standards has been derailed by the election, prolonging the risk that thousands more may be caught up.

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