WELLINGTON NEWS

Hokitika Guardian, 20 April 1926, Page 4

WELLINGTON NEWS

THE FINANCIAL BAROMETER, (Special to “ Guardian.”) WELLINGTON, April 17. The- banking returns which are issued quarterly in accordance with statutory requirements, when carefully studied give one a good idea- of the economic conditions prevailing in the country. It is a singular thing, and a regrettable one, that comparatively few business men take the trouble to analyse the figures. To some, figures are a hug bear, others can see very little in them, while others have no time to mess about with a lot of figures, and to not a few business men the figures arc unintelligible. The banking returns are really not difficult to understand if a few essential factors are kept in mind. Hankers are credit merchants, that is they buy and sell credit, or to put it in another way, they borrow from and lend to the public. The deposits represent the amounts borrowed by the banks from: the public, and there are three classes j of deposits. Government deposits are of course the credit balance* of the Government uilh its hankers, the Bank of New Zealand. The fixed ■ deposits arc the amounts lodged with the banks for varying periods from, 0 months to 2 years and on which definite rates o! interest are paid by the banks. The free deposits or current, account balances which represent the commercial deposits, are the working capital ol the business community. There is of course no interest paid on these deposits, which may be called up at any moment. The banks are made a convenience by the holders of the free deposits, and mainly for that reason lhe.ro is a charge of Ills per annum for maintaining the open accounts. The amounts lent by the banks to the public are Shown in the advances and discounts, ami in normal times, when trade and commerce are sound and healthy the deposits in the aggregate exceed the advances and discounts. The need for seeking bank accommodation in normal periods is small, and the volume ol the accomiiiodatint) will vary according to the time of the year or the season. When abnormal conditions pevail there generally follows a contraction in the free deposits, but not necessarily in the fixed deposits. It often happens that the hitter expand, for people lose confidence in times of stress, and prefer to place their funds in the safe keeping of the banks. In times of trade difficulty is when there is a big demand for hank accommodation, ami the advances increase. There is also a greater disposition on the part of traders to discount bills with the hanks. In normal times they would hold the hills and save the discount. All these are obvious movements in the bank figures, and a few comparisons with the corresponding figures of other periods soon give one an idea of how the economic conditions are shaping. That this knowledge is of importance to the business men goes without saying. and it is therefore remarkable that so few people give attention to the figures. REVIEW OF THE RKTFRXS.

If the Hank returns for the March quarter which have just been issued are examined it is found that the tree deposits have coot meted by £2.8!IO,(!()ti. while Llie free deposits have increased by C3O l.tllfs. These two classes of the deposits for the March quarter totalled L' 17..'Kid. ISO as compared with L 1D.M97.22S in the corresponding quar - ter of 11)25. There "as thus a shrinkage of L'2.59l ,5 IS. which is by no means i satisfactory position. The advances on the other hand show an increase of £4,346.353 ami the discounts increased bv £208,527, The aggregate of these two items being £48,285,142 as against L' 111.780,202. there was thus an increase of £4,354.880 ift the amount lent, by the banks to the public as compared with a few years ago. At this point

it is necessary fu direct attention to a factor which m.iv be easily overlooked but which is of great significance. Hank advances make bank deposits. That, is axiomatic or should be. If say a merchant borrows CM,OOO from the Hank of New Zealand, and against, that lodges four cheques eaeh for C 2.000. and pays these amounts over to bis creditors, who in turn lodge the cheques with lour other hanks, the banking returns would then show advances £8(100 by the Hank of. New Zealand and free deposits by four other banks each fur £2OOO. totalling CMOOO. Thus the advance made by the bank of New Zealand has created deposits to the -same amount. According to the returns under review, the advances increased as compared with a year ago j h.v £4,554,880, yet the free and fixed deposits exhibit a shrinkage of £2,304,548. How is this accounted lory At this point the- export and import returns ionic into the picture, also! the payment of interest and sinkingfunds cup loans contracted abroad, and the payment of freight and insurance. The deposits have not increased commensurate with the increase in advances because funds have been transferred to London and to Australia to meet the excess of imports and the other items enumerated above. In short, there has been a transfer of capital, which can he ill-spared, and the loss of it to the country must make conditions hard lor those who wish to borrow, or find it necessary to do so. II the position gels no worse, we could probably meet the situation with little inconvenience, hut. unfortunately, the trend seems to lie for matters to got worse. 1 here will he a shortage of loanable credit, and borrowers will no doubt be called on to pay higher rates ol interest, which is the only way ot imposing a. check. The banking returns do not disclose a. satisfactory state of affairs.