LONG DATED LOANS

Dominion, Volume 20, Issue 60, 4 December 1926, Page 10

LONG DATED LOANS

BANK OF NEW ZEALAND’S EXPERIMENT WATERTIGHT DEPARTMENT CHAIRMAN OF DIRECTORS REVIEW SCHEME This is believed to be the first instance of an ordinary joint stock bank in any part of the world creating a special department for this class of business, and the experiment will, doubtless, be watched with keen interest by bankers generally, and especially by bankers in countries that specialise in primary production. The directors are convinced of the soundness of the scheme and of the benefits borrowers will derive from it.

In the above terms, Sir George Elliot, chairman of directors of the Bank of New Zealand, referred at the halfyearly meeting of shareholders yesterday to the bank’s recent decision to set up a special department for the issuing of long-dated loans. “The proposal discussed at our annual meeting of setting up a special department for the making of longdated loans on an amortisation basis,’ said Sir George Elliot, “was considered by Parliament last session, and, as you are aware, an Act known as the Bank of New Zealand Act, 1926, was passed giving the bank authority to enter into this class of. business- As a resume of this Act has been circulated. amongst shareholders, I need not go over the . various clauses. “You will remember that the directors were authorised to issue £1,406,250 tn £1 shares, .together with three times that amount by way of debentures. As aTbeginnitig, half of this number of shares are now being offered to shareholders,. and applications for their individual quotas are receivable up to December 31 next. The other half will be issued later if, and when, the demand for loans of this description warrants it. Debentures will be issued as funds are required for the development of the business. You will remember that when the scheme was discussed at the annual meeting, it was with the hope that Parliament would agree to make some special reduction in the income tax in connection with this undertaking. Ihe Special Parliamentary Committee set up to consider the Bill, however, was averse to the reduction of taxation in the form that we desired. In view of the fact that no direct profit could be made by the bank on this phase of its activities, the committee recommended that the shares for which the Government had the right to apply should carry a fixed dividend of 6 per cent, as against the fixed dividend of 7f per cent, on shares allotted to the ordinary shareholders. As this' reduction of per cent, on one-third of the capital, together with the business of the Department being taxed on the same basis as an ordinary' joint stock company equalled the special rebate in income tax asked for, an agreement on these lines was arrived at. Power was taken in the Act that, witn the permission of the Minister of finance, further issues of shares and debentures beyond those immediately authorised could be made cn the same lines, but no application can be made to the Minister unless the consent of the ordinary shareholders of the bank is first obtained. In the future, therefore, the matter of extending the operations of this new department will be made on the initiation of ordinary shareholders. As the making of long-dated loans on an amortisation basis by a joint stock bank is, to an extent, experimental, the ordinary shareholders, should they deem it advisable, have the right to wind up the long-term mortgage department, cancel the shares and return all capital at par. “It is expected that the expense involved in connection with the activities of this new department will not be great as all matters connected with it will be carried on by the staff already in existence at the various branches, and although no direct profit can be expected, it is anticipated that a certain amount of indirect advantage may accrue to ,the bank. The department will be watertight, trading on its own special resources, and no funds of the bank will be used in its conduct otherwise than that advances up to £500,000 from the ordinary funds may be made pending the raising of capital or debentures. With this exception, it is intended that the ordinary business of the bank and that of the long-dated loans shall be kept entirely separate.”