N.Z. CONVERSION

Hokitika Guardian, 1 March 1933, Page 5

N.Z. CONVERSION

CUT IN INTEREST MEASURE BEFORE THE HOUSE. (Per Press Association Copyright.) WELLINGTON, February 28. Tlie Loan Conversion Bill was tonight introduced by Mr Coates, Finance Minister. He said: “Tlie pur-, pose of the Bill now before the House is to enable a conversion offer to be made to all holders of Government securities domiciled in New Zealand. The amount of debt concerned is approximately £115,320,000, but of this amount about £45,800,000 is held by tlie Post Office or Treasury accounts. These securities already hear much lower rates of interest; tna-n those held by the public in general. The rate on the Post Office and Treasury holdings is not above the, minimum of four per cent, prescribed by the Bill, but further reductions will be made by administrative action. Most of the holding of the post office belongs to the

Savings Bank, and the reduction that is possible in the interest on these securities is governed by the reduction in the deposit rate already referred to. The Basis of Conversion. “The basis of the conversion proposal is a reduction of 20 per cent, in the existing rates of interest, with a mini*' mum of four per eont. (apart from free-of-income tax securities) for the balance of the term of existing securities, and an actual return of 4 per cent, only from then until the maturity date of the new -securities. Except in the case of the tax-free securities, the new securities will bear a nominal rate of 4 per cent, from the date of conversion, which is to be the Ist of April. The following table sets out the, present rates of interest and the effective rates on conversion:—

[The above amounts are exclusive of the holdings of the Treasury and Post Office.]

“The debt at present hearing interest at 4 per cent, and under, is not affected. The 41 per cent, free of income tax debentures are to> be duced 'by 20 per cent,, to an effective yield of £3 12s per cent, for the balance of the currency of the present securities. During this period, new securities will, however, bear a nominal rate of interest of 3J per cent., the additional yield of 2s per cent, being secured by the issue of additional securities to the holder. For instance the holder of 41 per cent, tax free securities maturing on 20th April, 1939, will receive £IOO 10s 7d of new stock for every £IOO of his present holding. “Based on actuarial calculation, the interest on the extra 10s 7d, together with the redemption of the amount at the end of the period, will give the holder, the extra 2s, return. Thereafter the new security will bear interest at 4 per cent., subject to income tax. A4l per cent, security subject to tax will be convertible into 4 per cent, security. The reduction in this case is less than 20 per cent., but 4 per cent. ha s been adopted a» a minimum rate, apart from tax free securities. Securities at present bearing interest at from 51 per cent, to 6 per cent, will all be convertible into 4 per cent, securities, but the effective yield to investors for the balance of the present currency wjjll be higher in each case, as a greater amount of the new stock will be received by them.

“As a result of these issues of additional stock there will be an increase in the debt of approximately £500,000, but that is unavoidable as it is one of the features of the proposal than no reduction should be made in the capital of any investor’s holding, while it is desirable that the new securiteis should bear a uniform rate of interest. In any case, it is not practicable to have securities on the market bearing interest a.t odd rates. “The issuing of additional securities to raise the effective interest return will in many cases involve odd pounds, shillings and pence. Anything shortof a multiple of £5 will' be adjusted at his option hv the holder paying in, or agreeing to a reduction from the interest of, sufficient to bring the holding up to the next multiple of £5, on receiving in nash the excess over the last complete multiple of £5. T am able to announce that the overdraft rate for best accounts will be reduced from 6 per cent to 5 per cent, from Ist May next. Concurrent ly with the reduction of the overdraft rate, I have received an assurance from the Live Stock Auctioneers I and Agents’ Association that the rate I now being charged on stock and sta-

tion agents’ accounts will also be reduced by 1 per cent, with a minimum of 6 per cent. This decision is sublet to ratification by the stock and station agents outside Wellington, but I have every confidence that it will stand. “With bank advances standing at about £50,000,000, a reduction of 1 per cent, means a direct saving of £500,000 a year, and this relief will be afforded where it is most urgently needed. Even half a million pounds is but a fraction of the saving that will result from the lowering of the overdraft rates, for the interest charges on. all sorts of transactions are directly linked with the overdraft rate. “No limitation of the rates that may be offered for deposits by local .bodies has so far been fixed, but it will now be necessary, to prescribe the maximum 'rate that may be paid by such bodies. “In so far as the savings banks are concerned the rate for the post office savings bank and the trustee savings b°nks is at present 3f per cent, although so far uu the Post Office Sav. ings Banks is concerned this rate applies only to amounts up to £SOO, and above that amount 31 per cent, is allowed As a matter of equity the sav-

ings bank rates should be reduced to the same extent as other deposit rates, and it is accordingly proposed to fix the basic savings bank rate at 3 per j cent., to. bo operative from Ist April.”

Present Rate New Converive Rate. sion Rate. Per Cent. Per Cent. Per Cent. ,3 ' •£300 £3 0 0 3| £3 10 10 £3 10 o 4 £4 0 0 £4 0 0 4-J tax free £3 12 0 £3 10 0 AX . £4.. 0 0 £4 0 -U 5 £4.0 0 £4 0 0 o-h £4 2 0 £4 0 0 £4 4 0 £4 0. 0 5-J £4 8 0 £4 0 0 6 . £4 16 0 £4 0 0 Present Rate Present. New Per Cent. Debt. Debt. 3 £4,810 £4,810 3* 4,341 ' 4,341 4 400,038 400,038 4 i tax free 32,375,634 32,542,195 69,760 : ' 69,760 .,,,5 ,, it . 8,35(3,198 6,356,198 5-1 3,759,700 3,773,471 5« 8,448,040 8,497,263 5* 18,066,855 18,351,014 6 29,011 32,025 £69,514,387 £70,031,142