WELLINGTON NEWS

Hokitika Guardian, 7 February 1930, Page 2

WELLINGTON NEWS

OVERDRAFT RATES INCREASED.

(Special Correspondent.)

WELLINGTON, Feb. 5

The Associated Banks of New Zealand have raised the overdraft rate by 10s per cent, to 7 per cent, and while this was hot unexpected it has come rather m6re quickly than was anticipated. The last occasion on which a 7 per cent, rate was in force was from' May 1927; to July 9th. 1928. Then as now both' the overdraft and deposit rates wers raised by 10s per cents; No doubt the banks will come in for,; a good deal of criticism as they did previously blit they are justified, at least the action of the banks will be considered justifiable by those who have studied the trade and banking returns for the past year. We consider the export year as ending on September 30th. and for the year ended September 30th. 1929 the exports were valued at £56,1/4,333, as compared with £56,248,393. The shrinkage being only £74,260, but in the December quarter of last year the exports were valued at £9,924,284 as against £10,519,554 in the corresponding three months of 1928, showing the big shrinkage of £595,270. This heavy decline in exports was in itself sufficient reason for the banks raising their overdraft irate, but the, figures of New Zealand’s! overseas trade: for 1929 when compared; with that of 1928 amply dejmohiatmtea ffiie 'justification, lof the) action ofj the banks, 1 / . , , In th 4: first half-year, that is to June 30th. 1929, the; exports were valued at as compared with £37,255,272 in the corresponding six months of 1928,' an increase of £416,269 ;which was of course decidedly satisfactory. The trouble really began , ( witn the second half of the year, and ’tor the second half to December 31st. 1929 the exports totalled £17.807,522 as against £18,833,209 a shrinkage of £1,025,687, or over 50 per cent. The heaviest exports of the season take place- during the first quarter of the vear, and as produce prices have declined further it is obvious that the drop in exports to the end of March will be very substantial. The imports into the Dominion during the;’second half of . last year totalled £26,660,534 as; compared with £23,980,566 in the' corresponding half' of 1928, (showing an increase of £2,679,968, so Hihat the strain on the.banks whs £31706,655 greater than at the corresponding period of Iftst year. Some time ago, the banks were obliged to raise their selling rates on London in the hope; of checking imports,' but more recently they were compelled to further raise thq rates.

They were moved to -take ; action because the fall in the value of exports dominated their London credits, while the demand for credit in London to pay for imports expanded. The high exchange rates on London cannot immediately check imports because merchants in the Dominion have to send forward 'their orders sometimes six months Lin advance, and after two years of; excellent export trade the orders fof imports must have extended quite naturally. ... In addition to imports of merchandise there are invisible imports, that is the imports not recorded in the trade returns. Many New Zealand investors have'bought shares in Australian companies, and again and again sales have been reported of shares on the Sydney Register, or the Melbourne Register. The banks had of course to finance these purchases, that is they have had to find money in Australia to pay for the shares purchased there ther exhausting their overseas credit, b.iere are of course other invisible imports, but enough has been disclosed to justify raising the exchange rate.

The overdraft rate has been raised as from February Ist. from 6£ to 7 per cent., this being the minimum which is charged to “safe” accounts, others would no doubt have to pay more. Justification for this is to be found in the banking returns for the December quarter. For that period of 1928 the deposits that is the free and fixed deposits totalled £51,661,406 and the advances £48,101,104, the excess of deposits being £3,560,303; that means that , the public lent the banks that amount more than they borrowed from the banks and the position was a highly satisfactory one. For the December quarter of 1929 the deposits aggregated £53,356,733 and the advances to £55,807,931, showing an excess of advances over deposits of £451,198 which means that the big credit balance at the end of December 1928 was converted into a debit at the end of 1929, or to put it another way the banks as a. whole, repayed to the public the excess deposits of £3,560,303, and in addition advanced £451,198, that is to say the public in relation to the banks went to the bad by £4,011,501, which is £304.846 more than the adverse trade balance at the end of 1929, and this may be due to the invisible imports. Thus it will be seen thac the banks have very good xeasons for raising the exchange rates on London and .increasing the overdraft rate.