Governor keeps heat on banks over credit

Alan Bollard

We have been putting quite a bit of pressure on the banks to ensure they are not treating New Zealand borrowers in an unnecessarily different way.

Alan Bollard, Reserve Bank GovernorReserve Bank Governor Alan Bollard kept the heat on the banks yesterday to continue lending to businesses on reasonable terms.

When Bollard appeared before Parliament's finance and expenditure select committee yesterday, Labour's finance spokesman, David Cunliffe, said his comment to last Friday's job summit that the banks "should not underestimate the degree of corporate anger out there" chimed with what MPs had been hearing from major companies.

They were hearing of lending decisions now being made overseas and not by local relationship managers, Cunliffe said.

"That is a widespread concern in the corporate community," Bollard said. "We had more discussions [with the banks] during and after the summit. My comments seem to have taken some of them by surprise."

The banks were saying the market had got a lot more difficult, that it was harder to raise funds and riskier, and that that risk had to be passed on to corporate borrowers.

"We think that is true up to a point but it is very important they don't go beyond that point and are there supporting investment into our recovery," Bollard said.

"We would not want to see a home country bias [among the Australian parent banks] as is happening in
some places around the world."

The banks said on Friday that they had increased their lending to the business sector by $3.6 billion in the December quarter and had received $4 billion in additional funding from their Australian parents.

Bollard acknowledged business sector lending had increased but said some of that was the drawing down of backup credit lines already in place plus a degree of "back-filling" of the hole left by collapsed finance companies.

Cunliffe asked if he was confident the Australasian banks were treating New Zealand corporates identically with Australian ones.

"I can't say that," Bollard replied, although he noted that some Australian companies were also complaining about tightening conditions and higher interest rates.

"We have been putting quite a bit of pressure on the banks to ensure they are not treating New Zealand borrowers in an unnecessarily different way - bearing in mind there are some arguments about extra risk here - or running down their balance sheets."

Asked if he was happy about the extent to which banks were passing on official cash rate cuts to borrowers, Bollard said that at the short end of the interest rate curve there did not seem to be a big increase in banks' margins. At the long end rates were driven more by what was happening in overseas markets.

He was more concerned about the terms and conditions of loans being tightened to unrealistic levels.