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By Cameron Scott

AVARUA, Rarotonga, Cook Islands (September 25, 2001 – Cook Islands News)---Westpac Bank will allow some customers to take a temporary "holiday" on repaying the principal portion of their loans if the country suffers a dramatic drop in tourism.

While leading players in Cook Islands tourism agree it’s too early to accurately predict the medium to long term effects of the terrorist attacks in the U.S. and Air New Zealand’s desperate financial crisis, manager Terry Smith says if things do get tough, the bank is ready to help out.

"If some of our customers involved in the accommodation industry find they’re getting into hardship as a result of things blowing up with the tourism situation, we are quite prepared to look at a moratorium on principal repayments," he said yesterday.

"We could do that for three or four months till things settle down. If the accommodation industry has a prolonged downfall, delaying the repayment of principal could be very helpful to some people.

"Of course, they would still have to pay interest, but if they didn’t have to pay principal for a while it would certainly help them.

"We are monitoring the situation and we will put a plan in place if the situation warrants it."

Smith says the Westpac is also monitoring a fall in home lending rates in New Zealand, where the Reserve Bank recently slashed its Official Cash Rate by 50 points — the equivalent of half a percent. Banks there quickly slashed their home lending rates by the same amount.

However, Smith says Westpac has already brought mortgage rates down this year to a base rate of 9.25 percent — a move that was quickly followed by ANZ and the Bank of the Cook Islands.

And ANZ bank manager Paul Murphy points out that mortgage rates here don’t automatically follow New Zealand rates.

"The ANZ here has already reduced its interest rate for home loans by one percent," he says.

"It’s a common misconception that Cook Islands bank loan rates are linked to official borrowing rates in New Zealand.

"The fact is, Cook Islands banks don’t borrow from the market in New Zealand. Banks here are self-funding and we loan money from the deposits we hold. If the New Zealand Reserve Bank lowers its official lending rate it has no effect on lending in the Cook Islands."

Murphy says the ANZ is now sitting back and reviewing the lending rate situation.

"We are also looking at what other measures we might put in place to help our customers deal with the uncertainty and potential downturn that they face.

"It may be a strategy that we do lower our interest rate but it’s a bit too early to say."

Meanwhile, Bank of the Cook Islands manager Unakea Kauvai says BCI is adopting a "wait and see" strategy and will follow the lead of the other banks if they drop their rates.

On September 19 Reserve Bank of New Zealand Governor Don Brash said he had cut the Official Cash Rate to 5.25 percent as a result of the terrorism attacks in the United States and the probability that the global economic slowdown would worsen.

An NZPA report said the move was the first time the Reserve Bank had adjusted rates outside the official review period since the Official Cash Rate (OCR) system was introduced in March 1999. The bank was due to review rates on October 3.

For additional reports from the Cook Islands News Online, go to PACIFIC ISLANDS REPORT News/Information Links: Newspapers/Cook Islands News Online.

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