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Savings Institutions celebrate a new association

Media Release

From: Ross Smith,

Chair, New Zealand Savings Institutions Association

Embargoed until 5.30pm, 19 August 2008


New Zealand Savings Institutions celebrate a new association and 660 years of service

The Minister of Finance, the Hon Dr Michael Cullen, today launched a new association for Building Societies and PSIS, and helped celebrate their combined 660 years of service to New Zealanders.

The umbrella association, called the New Zealand Savings Institutions Association, will promote the savings institutions and their place in the financial services market.

Ross Smith, chair of the association and CEO of Southland Building Society, said toady: “The New Zealand Savings Institution Association will provide a hallmark of quality that reflects the long history of service each of its members has in heartland New Zealand. It will also be a vehicle for celebrating our shared history and collective values, disseminating messages, relationship-building and provide us with a stronger voice in the market.”

The new association includes three of the largest building societies in the country and PSIS – all established to provide services to their membership. Together they have total assets of around $5 billion and represent 300,000 New Zealanders and their families.

The Hon Dr Michael Cullen congratulated the association on its formation and their 660 years of service to New Zealanders.

The association members include: CBS Canterbury; Heretaunga Building Society; Nelson Building Society; PSIS; Southern Cross Building Society; and Southland Building Society.

Mr Smith said: “Almost all savings institutions in New Zealand have been operating for more than or nearly a century (139 years in the case of SBS), and each has been considered a safe haven by their respective communities and the customers that they serve.

“We are not finance companies, involved predominantly in high-risk lending, and nor are we banks, although we do operate in the banking sector, but only in the retail sector.

“Our member savings institutions each have strong governance, ethical standards, liquidity, reserves and asset base, we source our funding largely from retail deposits, on terms generally ranging from call deposits to three-year term deposits, and our lending is primarily first mortgage property lending over property in New Zealand. Personal (unsecured) lending is very limited. The members all have a diverse range of other funding options in place including: retail funding; committed and uncommitted bank lines and some have securitisation facilities.

“In addition to deposits, the sector as a whole offers a full range of products and services similar to those offered by the mainstream banks in New Zealand, including day-to-day transactional banking and an increased emphasis on face-to-face service in branches.”

What distinguishes savings institutions is that they are all New Zealand-owned and operate only in New Zealand. “We are set apart by our good relations with our customers being either regionally or community-based and with a long tradition of helping New Zealanders,” Mr Smith said.

“The association’s members have a history in New Zealand that cannot be matched by any other group in the financial services sector. We were the first to enable ordinary New Zealanders to own their own homes, have all been through depressions/share market crashes and our experience is great, with most of us having been collecting and lending money in New Zealand for well over 100 years.

“We want to tell our story,” Mr Smith said.

ENDS


Background Information on the

New Zealand Savings Institutions Association


The Association:

• The Building Societies and PSIS have formed an umbrella association, to be known as the New Zealand Savings Institutions Association.

• Membership of this association provides a “hallmark of quality” that better reflects the long history of service each of its members has in heartland New Zealand.

• The role of the association is to promote the savings institutions, comprising the building societies and PSIS, and their place in the financial services market.


The association provides a vehicle for:
- Celebrating their shared history and collective values
- Disseminating messages
- Relationship-building
- Providing the Building Societies and PSIS with a stronger voice in the market.

Membership:
• Southland Building Society
• PSIS
• Southern Cross Building Society
• Canterbury Building Society ( recently incorporating Loans and Building Society)
• Nelson Building Society
• Heretaunga Building Society

• The association includes the three largest building societies in the country and PSIS.

Members’ Common Ground:

Business
• Each has strong liquidity, reserves and asset base.

• All are New Zealand owned

• Governed by the Building Societies Act; or the Cooperative Companies Act

• Together they have total assets of around $5 billion and represent 300,000 New Zealanders and their families

• Conservative and risk-averse lending criteria

• Strong governance and ethical standards

• All source their funding largely from retail deposits, on terms generally ranging from call deposits to three-year term deposits.

• The members all have a diverse range of other funding options in place including: retail funding; committed and uncommitted bank lines and some have securitisation facilities.

• Lending is primarily first mortgage property lending over property in New Zealand based on conservative lending criteria. Personal (unsecured) lending is very limited.

• In addition to deposits, the sector as a whole offers a full range of products and services similar to those offered by the mainstream banks in New Zealand, including day-to-day transactional banking and an increased emphasis on face-to-face service in branches.


History/Experience
• All members have a long and proud history in New Zealand

• All members have been operating for more than or nearly a century (139 years in the case of SBS).

• Each was established to provide services primarily to its members.

• Each has been considered a safe haven by the respective communities and customers that they serve.

• All have experienced the economic cycle many times, including share market crashes and depressions.

• Conservative and prudent money management.

• The first to enable ordinary New Zealanders to own their own homes.

• New Zealand Savings Institutions are set apart by their good relations with their customers; being either regionally or community-based and with a long tradition of helping New Zealanders.

In Summary

▪ Members each have:
- Collective values – reason for being
- Commonality in funding – mainly retail
- Commonality in lending – mainly first mortgages
- Vast majority of loans secured by first mortgages
- NZ funded/NZ lending
- Personalised service
- Face to face service - branches


▪ Members each are:
- NZ-owned
- For the most part, either a mutual or cooperative
- Marked by good relations between their branches and their customers
- Approachable – friendly faces

▪ More significantly, when coming together within the Association, they each have an understanding of each other, and a cultural ease.

Telling the New Zealand Savings Institutions Story:

• The association’s members have a history in New Zealand that cannot be matched by any other group in the financial services sector.

• They have all been through the ups and downs of economic cycles including depressions/share market crashes and their experience is great.

• At the launch of the Association the members celebrated 660 years of combined service to New Zealand.

• The members want this history to be more widely known and the place of the non-bank savings institutions in the market-place better understood.

• The Association’s members believe that the current climate is an appropriate time to develop a distinct identity for the group, to develop understanding of New Zealand’s savings institutions and distinguish themselves from the rest of the non-bank financial intermediary sector.


Background/ Commentary:

Non-bank financial services institutions:

• Non-bank financial services institutions are a diverse and large group – more than 200 – but most of them are very small compared to banks.

• Non-bank deposit-takers comprise about 70 finance companies and a group described by the Reserve Bank and KPMG Banking surveys as “savings institutions”. Included in this second group are 7 active building societies, about 50 credit unions and PSIS. Only two or three credit unions are represented in the KPMG Survey as the others are too small.

• Non-bank deposit-takers have a wide range of lending profiles. And as the Reserve Bank says: “They positively contribute to the diversity of the New Zealand financial system, by assisting in allocating capital to those with the highest demand.”


Recent developments in the financial sector:

• It is key that the savings institutions separate themselves from the turmoil in the finance sector.

• The savings institutions are very different to the finance company sector – different cultures, different traditions and different sources of funding (governed and guided by specific pieces of legislation).

• Because of the excellent relationships between branches and members’ customers they have enjoyed a high level of re-investment of deposits (in excess of 80%).

• These features reflect favourably on the ability of savings institutions to withstand the downturn in credit quality and increased profit pressure that are occurring during the slower growth period.

• However, there are increasing concerns regarding the contagion effect of
business failures among finance companies and the adverse effect on depositor confidence.

• Concern with the risk the NZ market is facing as a result of the global credit squeeze brought about by the changes to the US sub-prime market.

• Either circumstance, if it spreads to financial institutions generally, could prove challenging for the savings institutions and could also adversely affect the banking sector.

• The danger is that the volatility in the short term, through a lack of liquidity, could harm otherwise healthy firms as we have already seen in the finance company sector and also in the case of mortgage trusts.


New Regulations

• The association supports the changes because these will promote a sound and efficient financial system.

• We view the changes in the regulatory environment, especially around compliance, as positive and are very supportive of them.


Going forward

• In all likelihood there will be market consolidation in our sector but these are likely to be friendly mergers, with similar like-minded financial institutions looking to develop sufficient scale to produce leaders in New Zealand controlled financial services, with strong governance and ethical standards supporting a sense of community.

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