Interest regulations may be amended

Press, Volume CXII, Issue 32886, 8 April 1972, Page 21

Interest regulations may be amended

(New Zealand Press Association) WELLINGTON, April 6. The Government is considering an ammendment to the Interest on Deposits Regulations which would permit a trading company to be reclassified as an investment society if it significantly increased its borrowing for on-lendng, the Minister of Finance (Mr Muldoon) announced.

Re-classification would made all borrowing of the company subject to the regulations. "The Government is concerned at reports that some trading companies may in-

tend using their ability to borrow at rates outside those specified in the regulations in order to raise money to absorb business previously carried on by finance companies, thus avoiding the purpose of the regulations.” Mr Muldoon said in a statement on decisions taken by the Cabinet Economic Committee on some aspects of the regulations gazetted last week.

“The intention of the Government is that the limitation on interest rates should apply to all borrowing by finance companies and to the unsecured borrowings of trading companies. “As drafted the regulations could enable avoidance of this intention in certain cases and amendments vill be made as soon as possible to ensure that the borrowing of trading companies will be exempted only if they are fully secured,” Mr Muldoon said. Some businesses had relied to a substantial extent on deposits which, although nominally at call or short notice, had in practice been left with them for long periods. The reduction in interest at the maturity of such deposits could lead to quite massive withdrawals with severe embarrassment to the business. “To give time for adjustments to be made for the companies where appropriate the Government will grant an exemption from the

operation of the regulations for such period and under such conditions as may be apppropriate,” he said. The Cabinet Economic Committee also discussed the possible application of the regulations to bill financing. “The Government was loath to inhibit the development of the facility but it was concerned that the sale of bills with a repurchase arrangement could be a substitute for deposit taking and a means of avoiding the interest rate limitation. The committee will be interested in the movement of interest rates for this type of transaction,” Mr Muldoon said. Another amendment would be made to the regulations to provide that interest paid on deposits withdrawn before maturity would not exceed the rate applicable to the time the deposit had actually been held.