Area banks see changes

Waimarino Bulletin, Volume 6, Issue 247, 21 June 1988, Page 8

Area banks see changes

Trust Banks in this area are going through some important changes in their history, including changes to their ownership and to their government guarantee of depositor funds.

Two community trusts have been set up to own the merged Trust Bank Wanganui and Trust Bank Eastern and Central. In the two bank's previous history, formal ownership had never been an issue. The banks were governed by an Act of Parliament with its depositor funds backed with a Government guarantee. In return for the guarantee it was restricted by the Government in respect of its trading activities. Those restrictions included an obligation to invest a high level of depositors' funds in low yielding Government Stock. "Deregulation of the

financial s e c t o r changed all that" explained the combined banks Chief Executive, Ewing Robertson. "If community banks were to survive in a deregulated banking environment, they had to be given the freedom to make decisions on the same footing as other financial institutions," he said. The first step in that process will be to structure the banks as companies under the Companies Act 1955. Shares based on the bank's reserves, will be issued to two community trusts, Trust Bank Wanganui Community Trust and Trust Bank Eastern and Central

Community Trust. One of the trust's first tasks is to make recommendations to the Minister of Finance on the appointment of a board of directors, to administer the affairs of the trust's asset, soon to be formalized Trust Bank Central. "This procedure, laid down in the Trustee Bank Restructuring Act passed r e c e n 1 1 y , achieves our objective of having a structure which will allow the bank to meet the challenges of a deregulated banking environment, while preserving our fundamental reason for being. That is, to be a regionally-based bank, where dividends are returned to the region in the form of grants to specific organisations and projects," Mr Robertson said. In its 25 years Trust

Bank Wanganui has returned around $500,000 to the region in grants. Last year the community benefited to the tune of $90,000. Grants were made to the Wanganui Coastguard (Rescue Boat) and the Wanganui Amateur Roller Skating Association. The philosophy of community involvement is embodied in the Restructuring Act, Mr Robertson said. In Section 21 of the Act, concerning the purpose of the community trust, it states that all property vested in, or belonging to, a community trust shall be held in trust to be applied for charitable, cultural, philanthropic and recreational purposes of benefit to the local community," Mr Robertson said. Essentially, this enables the trustees t o preserve the fundamental purpose of the bank, while allowing the bank's board of directors to get on with the job of ensuring, in a commercial sense, that the trust's asset - the bank can return a dividend to the community," he said. Consistent with its desire to see the same rules applying to all competing financial institutions, the Act allows the Government to withdraw its guarantee on depositors funds over a two year period. Simply all existing term deposits will be guaranteed for their term. Deposits made after the restructuring of the bank under the Companies Act will be guaranteed for two years or their term of maturity, whichever period is shorter. "A problem with the Government guarantee was that the trading conditions imposed in return for the guarantee have inhibited the bank's need to operate with the full flexibility they want to meet the

challenges of the new environment." "In the near future, no financial institution will have a Government guarantee any more," he said. Mr Robertson said one of the major implications of the new structure was that it provided a mechanism for the regional banks making up the Trust Bank Group to formally join together under the umbrella of a holding company, Trust Bank New Zealand Limited. The combined assets of Trust Bank New Zealand have a capital to deposits ratio which already meets the requirements of the new international banking proposals for capital adequacy which are backed by the major OECD countries. Reassurance and Security "This should provide substantial reassurance and security for depositors at any of the regional banks," Mr Robertson said. Trust Bank New Zealand Limited is an excellent vehicle for allowing each regional bank to preserve its identity and to contribute to its own region, while enjoying all the advantages of a nationwide bank, able to offer a s e r v i c e throughout New Zealand for all its customers," he said. Trust Bank New Zealand Limited (which currently operates as Trustee Bank Holdings Limited) will have more than 200 branches, 2,700 staff, more than $3 billion in assets and an estimated personal deposit market share approaching 15 per cent. It is also one of the initiating seven members of the new Bank Clearing House Operation (BACHO), which is responsible for key settlement and money clearing functions in the economy.