No merger plans for profitable NBS

The Nelson Building Society has no plans to merge with other savings institutions, because it is doing just fine by itself, says general manager Ken Beams.

Mr Beams said the country's oldest building society, which later this month would announce a record result, had not been approached to join the proposed merger of the Canterbury Building Society, Southern Cross Building Society and Pyne Gould Corporation's Marac Finance into a $2.2 billion "heartland" bank, and would not be interested anyway.

The move has sparked speculation that the merger could attract more partners. Ratings agency Standard & Poor's is predicting further consolidation among building societies and credit unions.

But Mr Beams said NBS, as a mutually owned organisation, would not be part of any such merger.

A member of the Savings Institutions Association, NBS spoke regularly with the handful of other mutual building societies left and others in the industry about what was happening in the marketplace. but saw no need to join a larger group, he said.

While many in the finance sector had not made a profit, "we've come through the recession very well", Mr Beams said.

NBS had strong liquidity, strong local support, minimal bad debts, and low risk because it invested almost exclusively in residential first mortgages, and had made a good profit before tax of $1.1 million last year and would make a bigger one this year, he said.

While the compliance costs for smaller institutions for such things as audits, international credit ratings and trustees were high and rising, and ate into the bottom line, "why would you want to give away something that's locally owned and contributes to the community?".

For the same reasons, NBS was "highly unlikely" to renew its application to rejoin the Government's retail deposit guarantee scheme, which would expire in October, he said.

Unless the banks and most other players rejoined, NBS didn't believe it was justified.

"The Reserve Bank have said they see no need for savings institutions to be in there, and I don't see the need either."

The scheme was designed to help the finance sector through the recession, but this was now over, and the Reserve Bank would probably confirm this by lifting the official cash rate tomorrow, Mr Beams said.

Locally, there were signs that the economy was recovering, with mortgage business picking up.

"We've had 10 per cent growth in the last year. If we do go in [the guarantee scheme], there is a great cost, because it has changed dramatically from the original guarantee. It's been priced for you not to go in."

He estimated it would cost NBS almost $1m a year to rejoin. The Reserve Bank had made it clear that the scheme would end in October next year.

- © Fairfax NZ News