WELLINGTON NEWS

Hokitika Guardian, 15 June 1927, Page 4

WELLINGTON NEWS

MONEY RATES AND CREDIT

(Special to “ Guardian.”)

WELLINGTON, Juno 11. The recent advance hy the Associated Banks in their rates for overdrafts and fixed deposits have already been severely criticised by many ill-informed

people, and there is every probability of tho matter being discussed in Par-

liament by the ill-informed peanut politicians. Mr H. K. Holland, the Loader of the Opposition, had a good ileal to say on the matter, not that he was able to discuss the matter intelligently. hut because lie is angling for the small farmers’ vote. The banks could, had they desired, have answer-

od all adverse criticism quite effectively. Bankers are not like politicians for they do not seek publicity, hut prefer to be judged by results. Bankers, as has been repeatedlv stated, are

credit merchants, they borrow money 1 and they lend money, and tho two movements mtisi necessarily have some relation. In the older countries where, 'ever there is a central hank, a check j is kept on credit inflation, because in- | flation of credit is just as harmful as I currency inflation. The central hanks

raise or lower their rates according to the volume of credit. There being no central hank in New Zealand to undertake this function, the banks must, therefore, in association, regulate credit, and that is what they have done having regard to the volume of deposits and reserves. This method is invariably applied for it is good sound banking principle. It' cannot be too strongly .emphasised that the advances made by tho banks were imperative, not alone in Hie self interest of the hanks, but in the interest of the country. The upward movement was long overdue, and had the rise taken place a. year ago it is probable that we should not have had so much unemployment in the country. The reasons that have forced the banks to raise their rates have been the contraction, in the deposits and the expansion in the advances. There was thus a. tendency towards credit inflation.

1 With rospw l to the eontraet ion in deposits, and Government deposits me not included, the hanking returns for the .March quarter of this year show that, the deposits totalled £.10,0-8,811?, ' in the March quarter of last year the | total was £-17,.‘102,-180, and in the

I March quarter of 1925 the amount was J £49,897,228. Thus it will be seen that .' in two years there lias been a shrinkage in the deposits amounting to £l,308,11 b. The free deposits dropped . from £20,765,517 in March 1025 to ! JC24. 110.778, a. decrease of £5,324.739 lor 18 per cent, while the fixed deposits during the two years increased by £050,324 only, on an average rate | of say 41 per cent which was about the rate current before the recent advance of 10s. There appear to have been two reasons why the growth of the , fixed deposits was so limited, one was the keen competition on the part of • other seekers after deposits, and the other was that the bank interest rate was not as attractive relatively as those offered by competitors. The latest official figures available for private savings banks are to March 31, 1920. and these show that from March 31. .1923, to March 31. 1920. the deposits of these private savings banks rose from £4,003,700 to £0.304.383. an increase of £1,700,083, equal to 30J per cent, while the increase in the fixed deposits of the trading hanks in the past two years was only 5 per cent. Tho deposits in the P.O. Savings Bank increased from £44.360,393 in March 1923 to £47,911,<100 in 1920, tho increase being £3,550.007. These deposits are practically at call for they can he withdrawn at any time, and on depostis up to £SOO the P.O. Bank allows np to 4 per cent, and though interest is paid on monthly balances only, tliis is a much more attractive proposition than the fixed deposits with the trading banks at 3 or 0 months mi which only 3f per cent per annum could he obtained prior to the recent advance. On deposits of over £SOO and up to £SOOO. the P.O. Sav--1 ings Bank allows 3:1 per cent interest, while fixed deposits with .the hanks at ; 12 to 24 months the interest rate was 4 per cent to 44 per cent, and here again the P.O. Savings Bank proposition was the better one for the depositor. The increase in the maximum deposit to £SOOO by the P.O. Savings Bank was not to encourage thrift but to serve the necessities of a spendthrift Government. The Public Trustee is also a competitor for deposits. The business of the Public Trustee is to handle trust estates, hut the T)e----j partment has gone outside of that and invites deposits on which an attractive rate of interest is offered, and the nionev so obtained is lent out on flat, mortgages. It. can be seen from the above that the trading banks bad no option but to raise their rates for deposits. The advances of the banks in the, first quarter of this year averaged £50.800,808. while for the first quarter of 1925 the amount was £43,730,262. so that in two years the advances increased by £7,070,546. while at the same time the deposits decreased bv £4,368.961, so that in the two years the banks have bad to provide more credit by £11.438,901. with ever increasing demands for more credit. That had to be checked, and the advance in the overdraft rate from Of per cent to 7 per cent provides the check. The trade returns will show the good effect of this, and later on business conditions will improve as purchasing power expands.