LONG-IERM LOANS

Evening Post, Volume CXII, Issue 59, 7 September 1926, Page 10

LONG-IERM LOANS

AUTHORITY TO BANK OF

NEW ZEALAND

"UNORTHODOX FUNCTIONS"

SOME LABOUR CBITICISM.

The Bank of New Zealand Bill, gwing the bank authority to establish a special branch for making long-term advances to farmers, was passed by the House of Bepresentatives last night. The Minister of Finance (the Hon. W. Downie Stewart) in moving the second reading, stressed the importance of the measure which he said might lead the way for financial institutions to institute - a better system of land finance. It was of particular interest because it proposed that the Bank ol New Zealand should un'dertake unorthodox functions. In that Connection the Bank of New Zealand could be said to be a pioneer. The establishment of a long term mortgage system would involve the establishment of a separate department of the bank. The new money which the Bill provided for would be lent at a rate of interest not exceeding 6 per cent., which was below the outside mortgage rate at present obtaining, although it was slightly above the State Advances net rate of 5} per cent. The present capital of the bank was earning considerably more than that rate, and the «et return to the shareholders on the present'capital; without concessions from the Government/ would be not more than £4 Us per cent. The question had been raised as to how the shareholders should be ensured approximately 5 per cent., and after careful consideration the Government had decided that the best way was for it to take it* share in the new issue at 6 per cent., instead of the 7J per cent. guaranteed to. ordinary shareholders; rather than consider the question of making a taxation concession. It had been found to come to the flame result within a few pounds.' One feature which did not appear in the Bill was that 'the' new department of the bank would b« taxed . as an ordinary joint stock company at 4s 6d in the &. That would be provided for in the Appropriation Act. As to how an equivalent concession should be made to other institutions, as it was proposed to give to banks, it. was quite possible to put them on the same basis as the Bank of New. Zealand so far as taxing them as companies, and not as banks, was concerned,, and to that extent it would be easy to put, a clause in. the legislation which had yet to come down providing that any bank adopting a similar department should be entitled to be taxed in the same way. Other banks might not be in the same position as the Bank of New Zealand in the way of being able to subsidise the funds of the, new branch out of the profits of their commercial undertaking. It was proposed to insert in the Appropriation Bill a basis which ought to encourage other institutions to adopt the same .policy as that adopted by the Bank of New Zealand. Mr. Stewart went on 'to refer to the clauses dealing with the issue of long-term mortgage shares, the Government taking up one-third of the total issue."

Mr. J. M'Coombs ; (Lyttelton) i "Does the Government intend to take them up?" The Minister: "Yes."

BANK'S INTERESTS FIRST.

The Leader of the Opposition (Mr. H. E. Holland) said he considered that the Bank of New Zealand scheme promised to prove more effective than the proposal in regard to the State Advances. What they -wanted was more money, bat he did not think that as a result of the scheme they were going to get cheap money. He was inclined to the opinion that the interests of the shareholders of the bank were being placed before the interests of the borrowers and' the people generally. The manager of the bank had stated quite definitely and frankly that unless the bank secured a concession of £6000 the great scheme—if it could be call;el a great seheme^-would go. by the board. Apart from that aspect, however,, he thought that the Bank of New Zealand scheme was likely to prove more practical than the State Advances 'scheme, as he believed that it meant that they would get money and get it "in a reasonable time. They were lookIng after the directors of the bank by increasing their remuneration by JSIOOO. Apparently, it was easier to Increase the remuneration of directors to increase the wages of the workers. In regard to the abolition of the T>alf-yearly meeting, Mr. Holland said that that would place greater power in the hands of the directors. What ■was needed was a State bank, but as they did not have such an institution the only way they could get the money they wanted was to abide by the terms of the Bank of New Zealand. .

WELCOMED BY FARMERS.

That the BUI Would be welcomed by the farmers of the Dominion was the yiew expressed by Mr. G. W. Forbes (Humnui). > Difficulty .in regard to finances and the fear of having to meet, their liabilities at short notice had always faced the farmers. The.Bank of New Zealand realised that big profits were not to be made out of these long-term loans. In the past a good fleal of the unpopularity of the Bank of New Zealand which existed in certain quarters had been due to the immense profits which the bank had made. A good deal of the criticism was due to the fact that there was no interest on current accounts and that there were other charges, such as -exchange, which it was thought might be reduced in view of the fact that the bank was a semi-State institution. It should be recognised that the farming industry could not be financed on ■hort-term credits, which were very unsatisfactory. - • ■ . .

SHAREHOLDERS TAKE THE RISK.

The Bight Hon. Sir Joseph "Ward '(Invercargill) said that there were very many people in New Zealand who wanted, money in large sums. The country would be very interested in the progress of the scheme of the Bank of New Zealand. He believed that as a result of the two pieces of legislation, the Bural Advances Bill and the Bank .of New Zealand Bill—they would be on, the eve of obtaining money for men who were desperately in need of it. It was the shareholders of the bank who were running the risk, and were practically providing a million pounds out of their own pocket. Mr. J. A. Lee (Auckland East): "They are getting a good return for it." Sir Joseph Ward: "Whatever their return might be, it shows that they have faith in the future of the bank." It looked to him as if New Zealand was indelibly wedded to the Bank of New Zealand as a State bank. Eevertirig to the Bank of New Zealand Sir Joseph Ward expressed the view that the proposals would havo the effect of giving those who wanted money renewed hope, and ho wished tho Bank of New Zealand well in its new project.

WITH A BLEEDING HEART.

"I think we might remove from our mind any ideas that the bank has sown its wild oats and has turned over a new leaf," said Mr. J. A. Lee (Auckland East). The bank might come forward with a bleeding heart and in a philanthrojAi spirit, bat tt was prettg

evident that the shareholders were going to get a good return. He did not blame the shareholders, who did not hold their shares for the good of the farmers' health. Mr. Lee expressed the view that if the Government gave the State Advances Department power to borrow money at call they would get it at a very low rate of interest —probably 3 per cent. Government members: "Where?" Mr. Lee: "The average individual who has money standing to his credit in a bank and which is returning nothing to him would rather transfer it to the State. Advances Department, if he could withdraw it when he -wants it." Mr. W, S. Glenn (Kangitikei) said that he did not want to see any philanthropy so far. as the Bank-of New Zealand was concerned, for any business that was going to be of any use had to be run on business lines. Long:dated loans were going to have a big effect on land values, and the Bill was going to have a really steadying effect on the finances of the country. The Bill was put through its remaining stages and passed.