F.H.A. concern over policy

Press, 30 August 1980, Page 19

F.H.A. concern over policy

PA Wellington ' The Government’s policy of steadily increasing the ratio of funds finance houses must invest in Government securities is “a cause for real concern” in the credit finance industry. The concern was expressed by the chairman of the New Zealand Finance Houses Association (Mr J. D. Rose) writing in the association’s annua! report. He noted that the Government had amended regulations removing the limit of 25 per cent finance houses had to invest with the Government. This was done as the Government felt it might be necessary to raise the ratio over 25 per cent to obtain the level of monetary restraint considered appropriate by the Reserve Bank. Since 1978 the ratio had gone from 12.5 per cent up to 25 per cent as at July 1 'this vear. “The one-way nature of the movement in ratio policy is a cause of real concern within the industry,” Mr Rose said. The Government were trying to make their, own secu-

rities more competitive on the open market and were competing with financial institutions for the savings of the investor. But on the other hand, said Mr Rose, the Government ensured that funds are ultimately directed to the Government even if the investor prefers the savings package offered by the institutions. “Given that the return to Finance Houses on Governiment stock is at or below jthe average cost of funds ithe immediate impact of an i increase in Government seI curity requirements is to increase the cost of funds to borrowers, both consumers and industry alike.” Mr Rose said that the Reserve Bank had stated that intervention by the Government should not impair the efficiency of the market. In spite of the advice, the ratio had increased, in the face of a slow-down in the growth of monetary aggregate

noticeable at the beginningi of the year. “Such a policy seems inconsistent with the need to ensure that sufficient funds are available for the major energy and industrial projects now coming off the drawing board, and that an adequate level of consumer demand is maintained throughout the economy.” The association, founded in 1965, comprises rhe following leading finance companies: Australian Guarantee Corporation (N.Z.), Ltd, A.A. Finance, Ltd, B.N.Z. Finance Company, Ltd, Broadlands Finance, Ltd, Finance and Discounts. Ltd, General Finance, Ltd, Lombard New Zealand, Ltd, Marac Finance, Ltd, N.Z.I. Finance, Ltd, and U.D.C. Finance, Ltd. Deposits with members for the 1979/80 year- increased $208.5M, or 27.7 per cent, to stand at $960.2M at March 31. ■ Net loans, advances and leases moved $220.9M, an increase of 32.2 per cent.

! The largest area of len-i ding was to industry, where, Total advances at March 31! stood at $205.4M. This was! followed by $185.2M lending on motor vehicles and 8127.4 M on transport and] storage. Lending to agriculture stood at $90.7M; Mercantile $65.8M Service Inidustries $76.6M; Housing i5104.9M; Personal $143.2M; and leasing $6.3M.