Commercial Mr Muldoon calls for prompt action from terminating building societies

Press, 2 July 1979, Page 21

Commercial Mr Muldoon calls for prompt action from terminating building societies

; Although the Government appreciates the tremendous contribution to housing by i the building societies — about SIOOM a year — it is worried over some aspects of the way the societies operate. In a recent speech the Prime Minister (Mr Muldoon) expressed concern over the 35 per cent rise in proceeds from thw forfeiture

of shares in terminating societies in the latest financial year. Mr Muldoon said that the forfeitures in the latest year amounted to $3.2M, bringing “the total for the past four years to $9.2M and for the past 10 years to SI7M. “Members were locked into long-term unrewarding contracts,” he said. “What an outcry there would be if members of the public lost, in one year, more than S3M in a single company which failed.” Mr Muldoon said it appeared that, after about 10 years of investment with the terminating society, a third to a half Of members would have withdrawn, and after 15 years three-quarters or more.

In the last four years the total membership of terminating societies has dropped from 408,000 to about 393,000, and gross share subscriptions were marginally lower in the latest financial year, although deposits increased nearly 36 per cent to SSIM, raising total funds more than 9 per cent to $446M. Mr Muldoon contrasted this with the permanent building societies, whose membership increased 66 per cent during the last four years — from 53,743 to 89,091, and share subscriptions have quadrupled. “In the last financial year alone, deposits with these societies rose more than 40 per cent to S77M, bringing total funds to $246M —- an increase of 19 per cent. “Total funds of permanent and terminating societies have increased 50 per cent in the last four years to reach S7OOM. Total membership is 480,000, with 66,000 mortgages current. “In the long term the Government may move towards greater involvement of the private lending sector in housing finance and the whole building societies movement should get together to prepare itself accordingly. “There are now 55 building societies in New Zealand, a decrease of 15 in the last ten years, but still far too many,” he said.

“The duplication, the multiplication, of facilities with their commitment of physical and persona! resources, which are reflected in costs, suggests that the industry could well consider some rationalisation.” Mr Muldoon sid that Government spokesmen had said on a number of occasions that some conditions in the savings contracts of terminating societies were not tenable in today’s society. “Certainly some prompt action is called for,” he said, “and the terminating societies will not find this Government unreasonable if they advance worth-while, fair and practicable proposals without over-much delay.” Within a few weeks directors of terminating societies will be meeting to consider the adoption of principles and practices which will overcome all the problems which have caused successive Governments some anxiety.

The T.B.S.A. secretary (Mr A. Hill) said an announcement would be made after the August meeting.

Detailed proposals would be put to the meeting.

Mr Hill added that the association continually was assessing the market and examining the requirements

of membership, but the purpose of the meeting, what was to be discussed, and the possible outcome, could not be disclosed at this stage. The main differences between terminating and permanent building societies are that in the former shares are grouped in a terminating group with regular ballots for interest-free loans. The contractual period is usually 10 years; shares can only be cashed at a disadvantage. Permanent societies have no forfeitures.

One of the problems in converting a terminating society to a permanent one is that the latter employ few salesmen whereas the former employ many.