Credit Shortage Could Choke Off Re

TRANS TASMAN POLITICAL LETTER

For Immediate Release

9 March 2010

Money Matters - Credit Shortage Could Choke Off Recovery

The Editors of The Trans Tasman Political Letter report NZ’s
increasingly fragile economic recovery could be choked off by a
shortage of credit. The finance sector has been decimated, and
major banks are cautious about lending as they seek to rebuild
their capital resources to meet new prudential ratios set by the
Reserve Bank.

The rural sector is being squeezed, with over-extended dairy
farmers particularly vulnerable. Farm sales have dropped, some
say because purchasers can’t get finance. The Aust-owned banks
are said to be hoarding capital.

Trans Tasman says some have taken huge hits on property
development loans, as did the finance sector. Lenders like South
Canterbury Finance are under the hammer.

Meanwhile Kiwibank, seeing new opportunities, is calling on the
Govt for more capital. It’s at a stage where it could grow into a
full-service bank, and the Govt is discussing a range of options.
These could include some sort of quasi-capital raising from the
public, or a new capital structure which could provide an avenue
of investment for the NZ Super Fund.

The Trans Tasman Editors believe the situation is ripe for a
Govt-led merger of institutions (think of Kiwibank, TSB and SBS)
to create a NZ-owned bank which would have wider access to
capital, and be a real competitor for the Aust banks, which after
losing big tax cases are a bit sour towards NZ.

The Govt has to weigh up the competing demands for capital, with
some Ministers seeing injecting cash into a small, fast-growing
bank as a risky strategy, as against investment in
infrastructure, or mineral development.

There’s little doubt this is one of the critical issues facing
the country, as globally the fallout from last year’s crisis
deepens.

Trans Tasman concludes, it’s not surprising Finance Minister Bill
English is in regular dialogue with the Reserve Bank on the
supply of credit and its control to avoid another housing
boom-bust cycle.

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