LOCAL BODY LOANS.

Stratford Evening Post, Volume IV, Issue 225, 3 September 1936, Page 3

LOCAL BODY LOANS.

IMPASSE IN MARKET.

Preference Leans To Government Bonds. : ■■••■'

p . |f JNCOME TAX.

Press Association —Copyright. Auckland, September 2,

An impasse in the local body loans market is being approached because lending institutions are disinclined to take up loans at SVa per cent., which is the maximum rate of interest allowed by\ the Local Government Loans Board. Nearly all lending firms, principally life insurance offices, are rejecting loans at that rate of interest because 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 hisher return.

There is a further reason in one case at least, that of the Auckland Savings Bank. Since 1933 savings banks have ben 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 For this reason the bank has withdrawn an offer to lend £25,0C0 at ; 3% per cent, to the Thames Valley Power Board.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 up a loan of £377.000 for 24 years at ZVi per cent, from the Auckland City Council. However, in this instance an arrangement to repay principal and interest half-yearly 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.''

■lt is r 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 lerms.