THE demise of Banksia Securities should raise questions about how much money was loaned to property developers, according to a local accounting expert.
Professor Graeme Wines, the head of accounting at Deakin University’s school of accounting, economics and finance, said the biggest proportion of Banksia’s loans were mortgages on properties.
“The question now is to what extent have those borrowers been affected by the property market,” Professor Wines said.
“The question is to what extent has that money been lent to normal borrowers versus property developers.”
Professor Wines said Banksia’s collapse also raised concerns about whether “it had slipped through the cracks in terms of regulation”.
Its collapse raised issues about whether non-bank financial institutions not already covered by the Australian Prudential Regulation Authority (APRA) should be covered.
He said non-bank financial bodies such as Banksia were required to make full disclosure about risks and information related to their activities through releasing annual reports and statements.
But many annual reports and statements could be difficult to understand without financial expertise, he said.
“The other major question relates to the nature of the events that arose between the finalisation of the company’s financial report on September 27 and the appointment of receivers only one month later,” Professor Wines said.
Banksia’s chairman and managing director had declared in the company’s financial report on September 27 there were “reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable”.
Less than a month later a continuous disclosure notice released by Banksia stated there had been an increase in “impairment of receivables”, or non-performing loans that would place it in a “net equity situation”.
“The most striking aspect of Banksia Securities, as depicted in its annual reports since 2008, is the company’s rapid growth over recent years,” Professor Wines said.
“The company’s assets grew from $373 million at June 30, 2008, to $691 million at June 30, 2012.
“This considerable 85 per cent growth in size occurred since the 2008 global financial crisis. In this period, economic growth in Australia has generally slowed.
“The company’s reported revenues and net profit did not grow to the same extent as assets and liabilities, with net profit increasing by a lesser 44 per cent over the same period.
“The company’s reported net profit was $612,507 for the year ended 30 June 2008, increasing to $881,716 for the 2012 financial year.
“The major question that arises with the considerable growth of Banksia Securities over the past five years is the quality of its lending decisions.
“That is, to what extent are the mortgage receivables now capable of being repaid?”