AN IMPASSE?

Evening Post, Volume CXXII, Issue 56, 3 September 1936, Page 27

AN IMPASSE?

LOCAL BODY LOANS

LOW INTEREST RATES

(By Telegraph.-rPress Association.)

AUCKLAND, September 2.

An impasse in the local body loans market is' being approached, as lending institutions are disinclined to take up loans of 3J per cent., which is the maximum rate of interest allowed by the Local. Government Loans Board. Practically all lending firms, principally,life insurance offices, are rejecting loans at that rate of interest, as they do not want to tie up money for any number of years while interest rates may harden. They prefer io look for other investments or to buy temporarily Government securities, which are showing a higher return. There is a further reason in one case at least, "the' Auckland Savings Bank. Since 1933 savings banks have been forced to pay income tax. Last year the Auckland Savings Bank paid £16,000 in income tax, and the recent incretase in the rate will bring its annual payment to about £20,000. For this reason the , bank has withdrawn an offer to lend £25,000 at 3J per cent, to the Thames Valley Power Board. Previously there had been correspondence between the two parties regarding the term of the loan, the bank being averse to a long-dated loan. Recently the bank took up a loan of £377,000 for 24 years at 3£ per cent, from the Auckland City Council. However, in this instance an arrangement to repay principal and interest halfyearly was reached. The bank is thus getting its principal back during the currency of the loan and can reinvest it if more profitable outlets are shown. It is the Government's purpose to keep interest rates low, however. Although there are ample funds for investment, lending institutions are not likely to enter the local body market without some relaxation of the Loans Board's terms.