Only 30% of NZers consider security when investing

4 JULY 2007

Only 30% of New Zealanders consider security when investing

New Zealanders have a worrying lack of concern for the financial stability of institutions they invest their money with, according to the results of a survey released today. The survey conducted by TNS, in conjunction with RaboPlus, found that only 30% of people considered guarantees and protections offered by an organisation when looking at investment. However, 72% looked at interest rates.

Mike Heath, General Manager of RaboPlus said that in the light of the recently announced collapse of Bridgecorp, the research is disturbing as it shows that New Zealanders are not thinking enough about the financial security of an organisation.

“It’s absolutely critical to check the security of an institution and the only reliable way to do this is to look at its credit rating. You need to look for a Triple A rating (AAA) from international ratings agencies like Standard & Poor’s and Moody’s. No matter how high the interest rate, no rate is worth putting your hard earned cash at risk.”

Mr Heath said the survey also revealed that only 8% of people know that a Triple A rating means that an organisation is a low risk place with which to invest your money, although 27% understood generally that it meant an organisation was a highly safe and secure place to invest. Thirty-seven per cent defined it simply as a ‘high credit rating’.

Another key finding was the common assumption that most New Zealand banks and financial institutions have a Triple A credit rating.

“The survey showed that up to 48% of respondents thought the major high street banks had Triple A ratings, and this is certainly not the case,” said Mr Heath. “The big banks have good reputations but a good reputation is not the same thing as a good credit rating.”

The only bank in New Zealand to have a Triple A rating from Standard & Poor’s and Moody’s is Rabobank, of which RaboPlus is a division.

“Another key point is that a credit rating is not the same thing as a credit ranking,” said Mr Heath. “Some financial institutions in New Zealand display their credit rankings, but a credit rating is a much more sophisticated and in-depth measure of an organisation’s financial stability.”

Credit ratings can actually impact on your real level of risk when investing, for example something considered low risk, like an investment into cash or bonds, can actually become high risk if you put your money with an institution that doesn’t have a credit rating.

Mr Heath says that as well as rate of return and credit ratings, people should also look at the level of risk they feel comfortable with – if they are not prepared to lose any money then high risk investments are probably not the way to go.

“When and how you access your money is also important, if you need it in the next year or so, then an investment like low risk bonds or savings accounts may be a good solution, but if investing for a longer term, then managed funds with a high proportion of shares can be a good option. One of the key points is whatever your decision about investing, don’t put all your eggs in one basket, you need to spread your investments around.”

Quick Facts on Credit ratings

- A credit rating is an independent assessment of the credit worthiness of an individual, corporation or country, and is therefore a key indicator of its financial security and ability to pay back a loan.

- Credit ratings are carried out by accredited organisations, for example Standard & Poor’s and Moody’s, and are based on a detailed analysis of the organisation’s financial history and liabilities. Usually the credit rating is presented in a comprehensive report with recommendations for improvement.

- Credit ratings are generally described by letters, for example AAA (known as Triple A) is the highest at Standard & Poor’s while D is the lowest. A low credit rating indicates a high risk of defaulting on a loan, and as a consequence, a low credit rating will generally attract a higher interest rate on a loan.

- Credit ratings can be short or longer term, but are usually only valid for a year. They can be changed, suspended, withdrawn or made void if there are material changes to the company that will affect the credit risk of the firm.

- In New Zealand all registered banks are required to undertake an annual credit rating but finance companies are not. It is not compulsory for banks and finance companies to publish their rating however this is being reviewed by the Securities Commission.

- A credit rating is absolutely critical because it is a key indicator of the organisation’s financial security and therefore their ability to pay back the loan. Consequently debenture investors rely heavily on an organisation’s credit rating to assess the investment risk because it is based on privileged information that the investor would otherwise not have access to.

RaboPlus is a division of Rabobank New Zealand, part of the international Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has more than 100 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank has the highest possible credit ratings from both Standard & Poor's (AAA) and Moody's Investor Service (Aaa), and is ranked one of the world's safest banks by Global Finance magazine.

Rabobank operates in 42 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1500 offices and branches. Rabobank is among the 20 largest banks in the world based on tier one capital. In New Zealand Rabobank employs approximately 115 staff across 29 branches to service its clients. Thirteen staff, including a Wellington based call centre, support RaboPlus customers.

RaboPlus is the winner of Best Online Savings Account, Best 90 Day Term Deposit and Best One Year Term deposit at the 2007 Sunday Star Times Cannex Banking Awards.

For further information please www.RaboPlus.co.nz or contact:

ENDS

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