Interest stops growth

Ruapehu Bulletin, Volume 6, Issue 286, 9 May 1989, Page 7

Interest stops growth

The single biggest impediment to recovery of agriculture is the high interest rates according to New Zealand Federated Farmers.

"Recent research by Federated Farmers demonstrates that despite lofty claims to the contrary, banks are thumbscrewing their clients on overdraft," says Federated Farmers acting president Owen Jennings. "First of all, bank charges have increased an horrendous 300% since 1984. Base fees, service commitment fees, loan application fees, regular charging of interest and the compounding effects of these have effectively increased the cost of borrowing from an equivalent 1.5% extra above stated rate to an iniquitous 4.58% extra above stated rate. That alone represents over $1100 extra per year for a modest overdraft requirement," he says. "These hidden costs, along with clearance fees etc., have been sneaked in on top of the blatantly usurious rates of interest. "Secondly, the margins on interest rates have also increased Bankers have been trying to tell us that "since deregulation its been tough out there." The reality is that margins between what they

have to pay on deposit and what they charge at base rate have widened since 1984. They peaked in 1987 but have yet to retreat below earlier levels. "To compare 1984 with 1989 - cost to bank of funds, i.e. deposit rate 11% in both cases. The margin between deposit rate and base lending rate in 1984 was 1.2%, in 1989 it was 4.75%. Margin above base rate averaged .55% in 1984, now 3%. Other charges 1.5% in 1984 - in 1989 4.5%. In total, the cost of borrowing on overdraft in 1984 was 14.25% and in 1989 a staggering 23.25%, or 9 percentage points higher, equating a 63% increase. "The morality of this is further called into question when one realises that inflation has actually come down from 9.4% to 4.7%. It is even more deplorable when one considers that many farmers are, through no fault of their own, on penalty rates ranging up to 13%. "It's time the banks stopped blaming the Government, uncer-

tainty, depositers or anyone else, and faced up to the hard decisions that the rest of the community have often, at bank's demands, had to face. Let them take the pruning knife to their own operations and cut back on inputs and profits as we have all done. "The Federation is keen to assist farmers negotiate better seasonal finance facilities and rid them of this parastic imposition," concluded Mr Jennings.