N.Z. could see more competitive banking

Press, 13 July 1985, Page 21

N.Z. could see more competitive banking

By

MICHAEL HANNAH

in Wellington

A licensing system allowing more trading baanks to operate in New Zealand is one of several big changes being considered as financial competition intensifies under Labour’s economic regime. Wider powers for trustee savings banks, building societies and private savings banks are also under consideration in talks with the Government, Reserve Bank and Treasury. Although the operations of finance houses and solicitors — traditionally the remaining significant players in financial markets in the past — are understood not to be under specific consideration, these groups also face radical changes in what institutions regard as a “rationalisation” of financial markets. They have lost substantial business, mostly to the banking sector, in the last six months, as is evident from figures obtained by “The Press.” The absorption of some finance house operations by parent institutions, where these are trading banks, is expected in the next few years. The Government is expected to make some deci-

sions affecting the future role of financial institutions after its August-September Budget statement has dealt with the more urgent tasks, of the goods and services tax and income tax cuts. Some decisions could be implemented next year, taking New Zealand into changes which have already swept through the United States and Australian financial markets. The changes being canvassed between the institutions and the Government would, if adopted, see: • Trustee savings banks being able to take deposits from commercial, profitmaking organisations, which they are at present precluded from doing. They would also lose their Gov-ernment-guarantee status. This move would allow the trustee banks to compete in the commercial paper market dominated by the trading banks and merchant banks, and could widen their deposit base. A time frame of three to five years is still understood to apply to any such changes, although moves could be made sooner. ® Building societies being able to offer services such

as cheque accounts, travel finance facilities, a secondary mortgage market, and even one-stop finance “supermarket” operations, whereby a range of facilities were available under one roof. • Some building societies moving away from the present requirement to place 85 per cent of their lending in residential property. • Some finance houses being absorbed by larger institutions. Rather than a proliferation of trading banks, institutions told “The Press” yesterday that any new banks set up under a licensing system were more likely to become “niche” banks, aimed at specific markets. The move to introduce a licensing system for trading banks, replacing the present system whereby banks are established by separate Acts of Parliament, appears aimed at allowing existing domestic institutions wider freedom to compete with the now-dominant trading banks. Overseas institutions would also be eligible to apply for licences, but, as the Bankers’ Association said yesterday, they could already operate as banks now, only they could not call themselves banks. Non-bank institutions are keen to have wider powers. This was confirmed by the Trusteebanks Association’s executive director, Mr Clive Thorp, and the United Building Society’s managing director, Mr Colin Jenkins. A paper on the future of the trading bank system, being prepared by the Reserve Bank, is expected to go to the Government soon, according to Mr Max Bradford, executive director of the Bankers’ Association. Mr Bradford considered that a licensing system did not necessarily mean there would be more trading banks in New Zealand. The licence, he said, would presumably be granted if institutions met certain prudential requirements. Moreover, institutions could already operate as banks, even to the extent of offering cheque accounts, without being able to call themselves banks. However, legislative changes would be

required for building societies and trustee banks to open up their operations, he conceded. The only demand for a licensing system was from the “purity of the Treasury and Government policy” that there should be no constraints on entry into the banking system, he said. He regarded the Post Office Savings Bank as potentially the biggest likely competitor to the existing four trading banks as it had a national branch network. The entry of the POSB was, he thought, a more likely consequence of licensing banks than the entry of overseas banks, such as the big American institution, Citibank. Mr Jenkins said that these moves were being considered because of the competition which has intensified between financial institutions under the Labour Government. Trading banks had gained at the expense of their competitors, who were unable, because of legislative restrictions, to compete on an equal basis. Building societies, Mr Jenkins said, were free to attract funds, but were restricted by law in how they lent money. For this reason, they had been unable to compete with trading banks on deposit interest rates, and lost some share of the market. Mr Jenkins also believed that heavy consumer spending in the last year had deprived building societies of deposits as customers ate into their savings. However, savings were starting to build up again, he noted, as consumer buying had dropped off in recent weeks. He expected that building societies would adapt in different ways to changes in financial rules. Mr Thorp said trustee banks had been constrained by the requirement in the past to invest heavily in Government stock. This did not provide an inflationlinked return, but tied up money for long periods. Trustee banks were also prevented from taking deposits from profit-making organisations.