About 20 aspiring banks

Press, 12 November 1985, Page 1

About 20 aspiring banks

By

MARTIN FREETH

in Wellington

At least 20 financial institutions are likely to have an interest in entering New Zealand’s freed-up banking industry.

Just which operators go ahead and set up as banks under the Government’s new policy, and what types of banking services they offer, are questions open to speculation. After deregulation in other parts of the financial sector, full bank status is only a short step from the present activities of some institutions.

However, no new banks will appear until the new Colicy, detailed yesterday y the Minister of Finance, Mr Douglas, is given effect with changes in several laws, and that is likely io

take until well into next year.

Prominent likely new entrants to the banking industry are the 12 trustee savings banks, N.Z.I. Financial Corporation, A.M.P., and Marac and Broadbank, both subsidiaries of Fletcher Challenge. A number of big international banks are also being tipped in the financial sector as having an interest in moving into New Zealand.

Under the new policy, institutions will be granted permission to call themselves banks if they can satisfy a number of criteria including an issued capital of $3O million (with at least $l5 million paid up), an existing substantial business in deposits and lending, and a well spread shareholding or firm internal controls to

protect depositors from heavy concentration or connected lending. The new banks will have also to demonstrate some expertise in the industry and have a good standing in the financial community. The Government’s approach in not limiting deregulation to an expansion of the number of bank licences and the criteria set down for qualification as a bank are in line with the expectations of financial executives. The president of the Trusteebanks’ Association, Mr Noel Toomey, said yesterday that his members expected to be among the first to receive authorisation for full banking operations. Trustee banks cannot now engage in corporate banking. Mr Toomey noted that the

trustee banks, with total assets of $3BOO million, already had many of the powers of trading banks.

“We now need the freedoms available under the new rules to improve and broaden the range of services we offer to our depositors and borrowers in the more competitive climate of today,” he said. He gave assurances that the trustee banks would “retain regional strengths and accountability,” and their commitment to housing and personal lending. Mr Toomey said the trustee banks were now having talks with the Reserve Bank and the Government on a transition process for attaining full bank status. The talks will decide how much longer the banks continue to have the Gov-

ernment guarantee, provided since 1948, of their deposits. It is not clear whether the trustee banks would become branches of one central operation or whether individuals would go out on their own.

A.M.P. yesterday confirmed its serious interest. The manager for share investment, Mr Paul Randall, said A.M.P. did pot see any problems, and a move into banking might involve some partnership with the American bank, Chase Manhattan, as happened in the liberalisation of Australia’s banking industry. A.M.P. has positioned itself for entrance into banking with the establishment this year of a finance company subsidiary, A.M.P. Corporation.

In addition to Marac and Broadbank, other big finance houses tipped to seek advantage under the new policy are Barclays, Nat West, Midland, Citicorp, Equiticorp, and National Mutual.

Interest is also expected from the merchant financiers Indoseuz New Zealand, Elders Finance, FAS-Mac-quarrie, and Fay Richwhite. The United Building Society yesterday confirmed that it was considering a bank move. The general manager, Mr Colin Jenkins, said the policy was in line with his expectations. Building societies, however, will have to wait for changes to the mutual basis of ownership provisions in the Building Societies Act, which is now being reviewed by Treasury. The Development Finance Corporation yesterday also confirmed its interest.

The Bank of America and the Hong Kong-Shanghai Banking Corporation are the main foreign-based banks seen as likely entrants. Both acquired new banking licences in Australia.

The National Bank of Australia has this year established a financial arm in New Zealand with the acquisition of a company formerly known as Beneficial Finance, and it may use this as the basis for a new bank.

It has been suggested that the large chain retail store, Farmers Trading Company, which has made innovative moves to provide customers with a banking facility, may also be a contender. The Government’s move to deregulate banking will face opposition from within the Labour Party. A member of the party’s New Zealand Council, Mr Rob Campbell, said yesterday that he would put a resolution to the council’s meeting on Friday that the Government not proceed with the policy announced by Mr Douglas.

Mr Campbell, who is a Government appointee on the board of the Bank of New Zealand, told “The Press” he would argue that experience so far with deregulation of the finance industry had hardly been encouraging. The first results had been big instability in interest and exchange rates, and in money supply. An open door to overseas

banks was particularly foolish economic management, Mr Campbell said. It removed New Zealand’s ability to bargain for reciprocal entry by its institutions into other countries.

He suggested that, contrary to Mr Douglas’s claims, deregulation of banking would not result in consumers benefiting from greater competition. Mr Campbell predicted that newcomers to the industry would chase the most profitable area which was corporate banking, and the established banks would cut consumer services to meet the new competition. He said the banking industry was already very competitive, as evident in the way institutions chased deposits and offered a range of services. In view of that, the Government should maintain its support for the socially owned members of the industry — the Post Office and trustee banks, Mr Campbell said. He also said that banking deregulation would lead to a drawing off of resources, including staff and telecommunications facilities, into an industry which was by itself not productive. This could be an unwise use of resources in a small economy like New Zealand’s.