Blame laid for loan problems
PA Wellington An independent report on the Post Office Savings Bank has pointed the finger at Labour Ministers and members of Parliament for the problems surrounding the bank’s shortlived home loan scheme for non-customers last year. "Political resistance to interest-rate increases seems the biggest single cause of the March-June lending problem,” said the consultants’ review report of the bank. The report reveals that the bank asked three times for rates to be increased in the face of excessive demand for home loan funds, but was turned down each time.
More money also went out than was budgeted for and the bank consequently realised a book
loss on the Government stock it sold to fund the mortgage lending. The episode provided a case study of the P.0.5.8.’s difficulties, the report said. Under the heading “lessons,” it said a conflict had existed between Ministers and the Labour caucus “who apparently wished to minimise political costs” and the incentives of P. 0.5.8. managers to run a business. The review team said that the bank had also failed to bring in effective control measures in the absence of market interest rates.
The report said the P.0.5.8.’s ability to monitor a new product appeared weak and was affected by poor management accounting systems and communication
within the organisation.
The scheme — which offered mortgages up to $60,000 at 19 per cent — was cancelled just two months after it was introduced when the Post Office realised its $l4O million fund was exhausted.
The loan proposal was implemented in mid-April, 1985, but the package was priced too low, the report said.
“Market demand for the mortgage credit was excessive and a greater volume of P. 0.5.8. lending was committed than was budgeted for,” it said. By the time lending could be monitored a month later — the earliest date under the bank’s reporting system — it was clear to the bank’s middle managers that the package was wrongly priced.
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Press, 9 July 1986, Page 44
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324Blame laid for loan problems Press, 9 July 1986, Page 44
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