Executives hit out at interest rates

Press, 24 September 1988, Page 34

Executives hit out at interest rates

Business reporter Criticism of the trading banks on interest rates was being expressed by a number of brokers and business executives yesterday. One Christchurch finance executive, who did not wish to be named, suggested the banks were keeping rates up to cover losses they had made on advances to companies that failed. The Bank of New Zealand and Westpac were among the lenders of millions to Prime-West Corporation, which was put in receivership this week. The Bank of New Zealand has postponed the lowering of its base rate by a percentage point, Westpac lifted its base rate on Wednesday from 15.75 per cent to 16 per cent. The ANZ Bank did the same yesterday. The planning manager of Westpac, Mr Mike Hensen, said yesterday that the rises stemmed from higher costs on the commercial money market and a feeling that inflation was not falling fast enough. This feeling made depositors unwilling to accept lower interest rates. Before interest rates would fall again, a new annual inflation figure of about 5.2 per cent would be needed to confirm inflation was truly falling, he said. Mr Graeme Pentecost, the BNZ’s manager, network, confirmed that reasons given by Mr Hensen. Asked whether business borrowers were being penalised because of losses made on loans to companies such as Energycorp and Prime-West, Mr Pentecost , said the costs arising from uncertainty and risk in the market at present had to be built into the margin between borrowing rates and lending rates by all financial institutions. Some small institutions

are still offering high rates to investors. Burbery, which crashed in Christchurch recently, was one of these. The rates offered, regardless of risk, help maintain investors’ expectations of high returns on their money. Though inflation is falling, New Zealand is still offering some of the best returns in the Western world on loan money. The banks say that supply and demand still rules, but the lending market in New Zelaand has many of the properties of an oligopoly rather than a free market. The few big lenders are the former trading banks, the new trading banks such as NZI, Countrywide, and National Australia, the merchant banks and insurance companies, the few stock and station agencies, and the main finance houses. The big players have the power to widen the band between lending and borrowing rates, especially when collapses teach the public and companies the danger of investing in small, riskier institutions. On the money markets this week, yields on Government stock rose slightly on Monday and Tuesday (to 13.02 per cent) but fell for the rest of the week, to 12.89 per cent yesterday morning. Secondary-market yields on a wide range of Government bonds rose during the week, between three and six basis points. Yields on 90-day bills moved between 14.50 per cent on Tuesday and 14.25 per cent on Friday, Jarden Morgan N.Z. reports, It adds that cash distribution problems again concerned the market early in the week, term notes rising while cash rates stayed around 13 per cent to 13.5 per cent. The position eased later in the week, the Reserve Bank injecting cash into the system.