Fran O'Sullivan: Business wise, the turkey will be stone cold

Ready for that "hair of the dog yet"?

Don't be surprised if the person administering the post-Christmas poison this year is your friendly banker, freshly armed with scintillating insider gossip on how much you have splurged on credit cards and what you have in store with your 2006 spend-up plan - and ready with just the right personal loan plan to see you right.

In case you missed it, yesterday's contestant for silliest story of the Silly Season was the news that Bank of New Zealand staffers had been sent on holiday pumped up by management to use "life event clues" to go "social prospecting" for business among family and friends.

Unfortunately, it is true.

Fast as Reserve Bank Governor Alan Bollard tries to dampen Kiwis' credit-bingeing habits by raising interest rates and inducing a debt-fuelled hangover, the Aussie banks are sending their scouts to provide "financial solutions" to our problems.

Clearly the banks - BNZ will not be the only financial institution on the make - are not that generous that they will solve anyone's problem by actually giving away cash.

What's in store is personal loans - or other financial products - at usurious rates which will make a bundle for their investing clients but stand to beggar borrowers.

The memo is a classic: "It does not matter where you are over the holiday period ... at work or on the beach ... there will be numerous opportunities to provide financial solutions to family and friends by referring them to Bank of New Zealand."

Among "life event clues for social prospecting" were a child attending university, purchases of property, cars or boats, bonus payments, overseas holidays and transient cashflow during Christmas.

Feeling angry yet? Still got lots of bankers on your New Year's Eve party lists?

I am sure that Bollard - already hacked off by his tussles with the Aussie banks over prudential supervision issues - will be feeling pretty sore about BNZ's open transgression.

He would have preferred that people actually managed "transient cashflow during Christmas" by using their own cash reserves - not do what BNZ implies: borrow to cover the seasonal out-flowings.

The upshot is that such behaviour may just be factored in by Bollard as yet another reason why it is too early yet to stop raising interest rates.

The bank's memo will be excused away internally as just good marketing and an incentive for the staffer making the most referrals to win a trip for two to the Commonwealth Games.

But this push by a bank - that still boasts New Zealand as part of its brand-name to increase market share in the fullout competitive banking environment - smacks of desperation.

BNZ has already been down the route of marginal lending practices before. It was slow off the mark in making an aggressive push for market share against Westpac and ANZ National in the competitive mortgages market and had to offer some good deals to maintain its situation.

Trouble is the Aussie-owned banks will face difficulties if some of the loans they have secured against the equity in New Zealanders' homes become risky when property values ultimately fall.

It is cyclical and the banks have been there before.

But the reality is that we are meant to be in the "get real" stage now - where we take a more prudent approach to debt as the economy shortens - not playing "blue sky" games at our bankers' behest.

When banks start to write loans so that their staffers can chalk up brownie points to win an internal competition - you get some perverse incentives where the self-interest of banking staff to leverage up the face value of the loans business outweighs that of the bank in the first place to ensure that the increased debt levels can be adequately serviced.

It may not be a major issue. Bank research shows home mortgages, for instance, are relatively safe: people would rather pay interest rates reflecting Bollard's rate increases than sell their homes.

But if the BNZ's approach to its commercial clients mirrors the solutions its aggressive marketing manager is pushing on the banks' retail customer base, then it won't be long before there are debt digestion problems all round.

It is not as if anyone needed any encouragement in the first place.

I hate to say, "I told you so" - again. But "we" - as in all of us - did spend up large on the big-ticket items at Christmas despite Bollard's warnings.

Was it rational to do so knowing the good doctor will in all likelihood rain on our parade next month?

That has to be a qualified yes.

The dollar is still riding relatively high against the greenback and other currencies. Thus it makes sense to buy imported items now rather than wait for the cost to slide later next year.

And the seasonal discounts some big city retailers offered were valuable.

Against that, those imported items will probably be discounted later to keep cashflows moving.

Eftpos figures showed total Christmas spending last week up by about 8 per cent on last year but traders reported takings on Christmas Eve itself down by 21 per cent.

Not enough figures are through yet to make an objective assessment. But the anecdotal evidence is the borrow-and-spend boom is still in full swing.

Bollard's problem is his ability to call "stop" is lessened when the banks are still pushing their hangover cures.

If they don't wise up, he may well impose lending ratio restraints. If that happens, it's cold turkey all round.