New Zealand Lawmakers Urge Banks to Lower Interest Rates

July 9 (Bloomberg) -- New Zealand banks should lower lending rates and sacrifice profits to prevent business failures, according to a parliamentary committee.

“We encourage the banks to recognize the national importance of lowering interest rates because unduly high interest costs could lead to the closure of businesses that may be fundamentally sound,” the finance and expenditure select committee said in a report posted on its Web site.

Reserve Bank Governor Alan Bollard has said there is scope for banks to lower variable home-loan interest rates further and Prime Minister John Key this week said banks “should listen carefully” to what the central bank was saying. The committee last week rejected calls to hold an inquiry into bank lending.

“A low-interest-rate environment is critical to New Zealand’s economic recovery,” it said in the today’s report.

“We recognize the need for the banking sector to remain profitable in the current economic environment, but we also believe that it should not be unduly so,” the committee said. “We are concerned that this may be the case at present.”

Local units of Australia’s biggest banks, National Australia Bank Ltd., Westpac Banking Corp., Australia & New Zealand Banking Group Ltd., and Commonwealth Bank of Australia, own about 90 percent of all New Zealand’s banking assets.

New Zealand’s economy began contracting in the first quarter last year and a prolonged global recession has stalled business investment and fanned unemployment. Many trading banks didn’t adjust lending rates when the central bank cut the official cash rate to a record-low in April.

The committee made its report after considering the Reserve Bank’s quarterly monetary policy statement. The committee comprises lawmakers from all parties and is chaired by a member of the governing National Party.