LOCAL-BODY LOANS

Hawke's Bay Tribune, Volume XXVI, Issue 223, 3 September 1936, Page 8

LOCAL-BODY LOANS

Interest Too Low to Attract investors

31 PER CENT. LIMIT

By Telegraph—Press Association AUCKLAND, Sept. 2.

An impasse in the local-body loans market is being approached, as lending institutions are disinclined to take up loans at 3} per cent., which is the 'maximum rate of interest allowed by the Local Government Loans Board. Practically all lending firms, principally lifeinsurance 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 to 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 havb been forced to pay income-tax. Last year the Auckland Savings Bank paid £16,000 in income-tax, and the recent increase in the rate will bring its annual payment to about £20,000. For this reason the bank has withdrawn its offer to lend £25,000 at 3) per cent to the Thames Valley Power Board.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 np a loan of £377,000 for 24 years at 3 J 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 re-invest 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.