On both the personal and commercial side of their business finance houses experience intense competition, both from within the industry and from without in the form of building societies and banks. For non-bank finance houses the assets portfolio is dominated by the supply of credit to the personal sector, although credit to industrial and commercial companies is also important. The majority of funds tend to come from the banking sector, although commercial bills are also important The majority of funds tend to come from the banking sector, although commercial bills are also important. Finance houses use the wholesale money markets to borrow around 25 per cent of their funds, and raise another 30 per cent from commercial banks.
The rest of their liabilities are raised through deposits from the general public, share capital and deferred taxation. One of the major problems faced by finance houses is that of interest rate risk, given the volume of fixed rate lending business. If interest rates change adversely, finance houses could find themselves funding fixed rate loans with more expensive floating rate loans . Finance houses are regulated by the Consumer Credit Act 1974 and the Director General of Fair Trading. Credit business to both the personal and corporate sector (but especially the former) are likely to grow in the future, providing substantial opportunities for Finance Houses.
NATIONAL SAVINGS The main role of the National Savings movement is to collect the savings of small or relatively unsophisticated savers in order to finance borrowing by the public sector. The variety of National Savings instruments is extremely diverse, and the degree to which various governments have utilised the National Savings sector as a method of raising finance has tended to vary over the years. The National Savings Bank has a large branch network in that its services are provided through post offices and sub-post offices, although of course the nature of these outlets differs considerably from those of the building societies or retail banks.
Non-Bank Credit Companies: Aggregate Balance Sheet. Holdings at end of year, book values 1989 As can be seen from the amounts outstanding in various instruments there are a number of different types of saving available, the most popular of which are National Savings Certificates, Ordinary Accounts and Investment Accounts (it is not the intention to describe in detail all of the instruments available, as descriptions are readily available from post offices). Many National Savings instruments pay tax free interest as this is more sensible than the government paying a higher gross rate of interest and then having the administrative cost of collecting the tax on those interest payments.
Unfortunately this also means that non-tax-payers lose out to an extent as they would prefer a higher gross interest rate that is subject to a person's rate of income tax. National Savings are not part of the composite rate tax system (unlike building societies and banks) in which the composite rate is deducted at source and can not be reclaimed by non-tax-payers. As interest is paid tax free on National Savings there is a competitive advantage in attracting the savings of those who do not pay tax. One of the major differences of the Department of National Savings relative to other financial intermediaries is that it does not hold an asset portfolio.
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