Finance Company Rates Defended
Criticism of the lending rates of large finance companies was completely unfounded, the manager of Pacific Factors, Ltd. (Mr J. M. Wood) told the Canterbury branch of the New Zealand Society of Accountants yesterday. .
Increasing competition among the large companies was already forcing lending rates down, he said. “The ill-informed critic does not realise that lending rates of finance companies are not profit rates. There is a tax and interest paid net return on invested funds of about 1.5 to 2 per cent,” he said.
He said comparisons between finance companies’ lending rates and those of trading banks and insurance companies should be closely examined before penalising finance companies.
“Margins between costs of money and selling rates in many cases favour banks and other lending institutions” he said.
Other types of financial institutions had taken advantage of a potential for growth and had developed equally with finance companies or in some cases far more quickly.
Rates Of Growth
“I refer in order of rate of growth between 1955 and 1965 to the National Provident Fund, 431 per cent; the Public Service Investment Society, 300 per cent; building societies, 200 per cent; the Government Superannuation Fund, 176 per cent; trustee banks, 162 per cent; life insurance offices, 156 per cent; stock firms, 155 per cent; general insurance companies, 153 per cent; finance companies, 150 per cent; friendly societies, 63 per cent; and trading banks, 33 per cent. “Today the 39 largest finance companies assist in these areas of production, distribution, and exchange to the extent of about £4O million.
“In spite of these contributions the finance industry in this country is a favourite target for criticism. Frequently its members are labelled ‘fringe bankers,’ which is a misnomer. Its members are supplying a second line of finance which is complementary to the banking system,” he said. The many criticisms levelled at finance companies concerned lending rates, and to some extent it had been justified, particularly during the long era of capital issues control from 1939 to 1962.
During this period, he said, many small finance companies had taken advantage of restrictions and abused their advantages of a high seller’s market by invoking high lending rates. The position was now different, and the emergence of large finance companies since the abolition of capital issues control has resulted in lower lending rates based on the strong borrowing power of the companies.
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Bibliographic details
Press, Volume CVI, Issue 31326, 23 March 1967, Page 16
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401Finance Company Rates Defended Press, Volume CVI, Issue 31326, 23 March 1967, Page 16
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