24 Oct 2008

NZ banks offer lower deposit rates

8:00 pm on 24 October 2008

A financial website says New Zealand's Government Deposit Guarantee scheme is a primary reason for some trading banks and finance companies offering lower deposit rates.

The Reserve Bank on Thursday lowered the Official Cash Rate from 7.5% to 6.5%, prompting most banks to cut interest rates by about 1%.

A few finance companies have followed suit, while others dropped rates after the Government Deposit Guarantee scheme was announced earlier in October in the wake of the international financial turmoil.

David Chaston of interest.co.nz says the Government Deposit Guarantee scheme is playing a part in the cuts.

Mr Chaston says it is clear that banks and finance companies do not need to make deposit rates as attractive to depositors, given the Government is standing behind their creditworthiness.

He expects banks that have not yet cut their deposit rates will do so in the coming days.

Wellington sharebroker Chris Lee says top-tier finance companies will benefit from banks lowering deposit rates and guaranteed finance companies are an attractive proposition at the moment.

Mr Lee says companies including South Canterbury Finance and Marac Finance have already seen millions of dollars come in since the Government announced the scheme.

Call for Australian govt to extend scheme

Australia's fund management industry has called on its government to extend it deposit guarantee scheme to mortgage funds.

The ABC reports this is because of a run on mortgage funds to institutions with deposit guarantees.

On Thursday major fund managers Perpetual, Axa Asia Pacific and Australian Unity put limits on redemptions of capital from their main mortgage funds, as investors flocked to institutions covered by the federal government's deposit guarantees scheme.

Australian Unity says it imposed the partial freeze because investors withdrew $A15 million to $A20 million a day from their funds on both Wednesday and Thursday.

Australian Unity also wants the government to also guarantee mortgage funds.

More funds in Australia are expected to freeze redemptions.