THE PRESS TUESDAY, NOVEMBER 12, 1985. More banks in N.Z.

Press, 12 November 1985, Page 16

THE PRESS TUESDAY, NOVEMBER 12, 1985. More banks in N.Z.

The lifting of restrictions on which institutions can act as trading banks in New Zealand will make important changes to the banking system and will recognise changes that have already occurred. Building societies, finance houses, and merchant banks compete for savings with the present trading banks, the trustee banks, and savings banks. They borrow from some people and lend to others. To some of the institutions, the idea of issuing their own cheques will seem an advantage; though it is a costly business for anyone to engage in. To all of them which are not now graced with the name of “bank” the title may carry a certain aura. The move is made in line with the removal of interest rate controls, of compulsory ratio requirements, and exchange controls. Part of the reason for the removal of these elements was that it minimised distinctions among different groups of institutions. It also meant that competition could enter as many financial activities as possible. The removal of the distinction between “banks” and “non-banks,” by allowing any properly qualified institution to perform the activities normally associated with banks, would seem to be the final step in the process. There are four trading banks in New Zealand at present: the A.N.Z. Banking Group, the Bank of New Zealand, the National Bank of New Zealand, and the Westpac Banking Corporation, the latter being formed in 1982 by a merger of the Bank of New South Wales and the Commercial Bank of Australia. The Bank of New Zealand and the Bank of New South Wales were the first, both being established in New Zealand in 1861. The National Bank of New Zealand was established in 1873; and the A.N.Z. Banking Group, by merger, was formed in 1969, embracing the long-established Australia and New Zealand Bank. The Bank of New Zealand became a fully-owned State bank in 1946. The others are owned by private shareholders and their shares are traded on the stock exchanges. The New Zealand Bankers’ Association was formed in 1891 to deal with matters of mutual concern. The Reserve Bank now exercises considerable influence in the activities of the trading banks. It was not, however, established until 1934. Before then, successive Governments

attempted to influence the activities of the banks.

Just what benefits the public will find in the new system are not immediately obvious. The most marked aspect of finance in New Zealand at the' moment is interest rates. Obviously there are going to be more institutions which will want to attract investors if more overseas banks enter the market. The population is the same and the amount of money to be moved will be more or less the same. It might be supposed that the new banks will offer attractive interest rates to get investments; what is borrowed at a high interest rate will be lent at an even higher interest rate. The only chance of competition lowering interest rates for borrowers lies in smaller profit margins for the institutions. Similarly the increased number of banks will want to offer investors more facilities, including loans. The difficulty with that is likely to be that it will be harder for the Reserve Bank to monitor the money supply and this may have consequences for inflation. The Minister of Finance, Mr Douglas, has set some strict criteria for the establishment of banks, including an issued capital of $3O million with at least $l5 million paid up. He has prescribed demonstrable banking expertise and good standing in the financial community. Clearly, only well-established businesses need apply to Mr Douglas, or, more strictly, to the Reserve Bank. Nevertheless when more institutions are being known as banks, the security normally associated with banks in New Zealand will not be as clear cut. The Reserve Bank is going to have a supervisory role of the banks as it has in the past, but that will not necessarily guarantee their soundness. In fact, it is not very likely that many institutions will engage in branch, or retail, banking that puts them in touch with the ordinary trading bank customer. Their business is more likely to be specialised and reserved for very large clients. Some new foreign banks may facilitate trade with some foreign countries. On the whole, however, the new banks, seem more likely to be institutions already functioning in New Zealand, and they will simply offer a wider range of services than they may at present.