Trusteebank loans-lift later

Press, 8 February 1985, Page 4

Trusteebank loans-lift later

Trusteebank Canterbury yesterday welcomed the move to free financial institutions from holding Government stock, but said that in the short term there was unlikely to be any increase on the present $5 million a month in mortgage lending. However, the bank said that in the long term the move would mean more funds would be available from the bank for housing finance and personal loans. More funds might be available for personal loans. The bank’s deputy general manager, Mr Ritchie Bray, said that it would not be possible for the bank to sell its Government stock holding of about $2BO million “overnight” without incurring a substantial loss. Although it was no longer compulsory to invest in Government stock, it was still an attractive investment, he said. At present, Government stock rates are about 18 per cent compared with the bank’s first mortgage rate of 16 per cent. Local body loan money should be as easy, if not easier, to attract lifting of the requirement

that financial institutions hold Government stock, according to two Christchurch local body officers. The compulsory ratio system required certain financial institutions, such as trading banks, trustee savings banks, building societies, life insurance offices and finance companies, to invest fixed proportions of their total funds in Government securities. Several groups had been able to meet this obligation through local body rather than Government stock. The Government has lifted the restriction and from Monday finance institutions will no longer have to hold Government stock. Mr Vic Sykes, acting treasurer for the Christchurch City Council, doubted that the removal of the restriction would have much effect on the availability of finance for local bodies. “The lifting of another restriction — that on how much local authorities could offer in interest — has meant that local bodies can compete with others for available money,” he said. “We can now go on the

open market and offer whatever interest rate it takes to get the money.” The restriction on the interest local authorities could pay was lifted late last year, he said. The only restriction now was that local bodies could go on the market for money only twice a year, in May and November.

The City Council would be looking for $1,150,000 to renew a loan in May, he said. The council would probably seek the money in the market.

In November, the council opted to refinance two loans from revenue rather than pay the interest rate required to attract the money on the open market. The council was examining the best way to finance the renewal of the loan in May. “It depends on what the interest rate does. We believe it will reduce,” Mr Sykes said. A spokesman for the Lyttelton Harbour Board believes the removal of the restrictions may . make money easier to find for local authorities. Interest in the hlrbour board’s loans

was still high among the financial institutions, he said. The board at present had a loan for $1.4 million for the Cashin Quay No. 1 Wharf Upgrading Fund on the market at 17 per cent. Although there had been little response, the spokesman said he believed it would be filled with funds from institutions. The Minister of Housing, Mr Goff, said yesterday that people seeking home mortgages would be among those most likely to benefit from the Government’s move, says the Press Association. The benefits would be medium rather than short term because it would take time for financial institutions to adjust, Mr Goff said. Mr Goff said compulsory stock ratios had acted as a penal tax on mainstream lending organisations which had the most to offer the home buyer in long-term mortgages and lower interest rates. Institutions such as private and trustee savings banks and building societies had had to invest one-§fth

to one-half of their funds with the Government. The president of the Building Societies’ Association, Mr Roy Broad, said, “Many institutions will remain disadvantaged by the Government guarantee on trustee banks. . “It means that trustee banks have a competitive advantage over all other institutions by being able to borrow, on average, at an interest rate of about 1 per cent per annum less than the other institutions.” The New Zealand Party leader, Mr Jones, applauded the Government’s move but alleged it was “yet another example of Labour’s plagiarisation” of his party’s 1984 election policy. Social Credit’s leader, Mr Beetham, predicted that the abolition of the stock ratios would mean higher interest rates. “This move will mean that the Government will have to hold more and bigger stock tenders than has already been the case, and the interest rates offered will provide a new higher base line for the entire interest rate structure.”