BANKING PROBLEMS

Evening Star, Issue 21745, 13 June 1934, Page 8

BANKING PROBLEMS

LESS OUTLET FOR CAPITAL FUTURE EARNING POWER THE GOVERNMENT’S POLICY. The development of the New Zealand Government’s banking policy may possibly have a material' bearing on the earning power of the trading banks in the dominion, and some interesting features are connected with the action taken with regard to Treasury bills (says the Auckland ‘ Herald ’). If the Reserve Bank takes over these bills from the trading banks, paying with Reserve Bank notes, the banks will have that much more funds seeking a profitable outlet. Collectively, the banks have several million pounds invested in Treasury bills, returning 5 per cent, per annum. This market provides a profitable shortterm investment, for which there does not seenj to’ be any alternative in New Zealand. The problem of placing these extra x funds, it the need arises, must be one of some concern to the banks. Even at present the banks are faced with difficulty in profitably using their depositors’ capital. This is reflected in the steady downward trend in advances and the increase in deposits over recent years. There is a further disability when interest rates are falling.— reductions in deposit and advance rates generally coincide—but the banks, while lending at reduced rates, are still paying at the higher rate on some deposits made, say, for twelve or twenty-four months. Thus the margin between the borrowing and lending rates—nominally 2 per cent.—is in some cases only 1 per cent. No adequate field for investment appears at the moment. The volume ’of trade has diminished and the requirements of capital in business are less pronounced, particularly under a high exchange rate, and while tariff changes are pending. Real estate does not seem attractive, rents having been cut drastically and rates having shown no corresponding fall. In tins field the return on capital must in some cases be as low as 2 per cent. Further, there seems little scope in farming land, much of which is heavily encumbered. Investors probably appreciate the banks’ position, and bank shares on the Stock Exchange now show an easier tendency. Developments in connection with the Reserve Bank are awaited with interest, but meanwhile there are signs that the banks are seeking business wherever possible. It is claimed by bankers that financial accommodation is given under any reasonable circumstances, and the falling off in demand alone governs the restricted use of funds,