BANK’S LOAN TO BOARD.

Hauraki Plains Gazette, Volume XXXVIII, Issue 5187, 5 October 1927, Page 3

BANK’S LOAN TO BOARD.

DISPUTE OVER INTEREST RATE. POSITION OF POWER BOARD. The question of the- Bank of N.Z. demanding an increased rate of interest in connection with an advance of £40,0'00, failing which meant the calling up of the overdraft, was further discussed at yesterday's meeting of the Thames Valley Electric Power Board. The matter, which was discussed at the board’s last meeting, Was introduced by the following letter, which was forwarded by the manager (Mr R. Sprague) to the Minister of Finance:— “I am directed by my board to t bring under your notice the; drastic action of the Bank of New Zealand in demanding the repayment of an hypothecated advance on loan account of £40,000 owing to the board

refusing to pay the increased rate of interest, namely, 7 par cent., as demanded by the bank. For your information I will detail the leading up to this demand. My board arranged with the A.M.P. Society for a loan of £lOO,OOO in amounts of £5OOO a month, the first payment to be made on May 1 of this year. The; Bank of N.Z. had arranged with the board to advance by hypothecation the; sum of £40,000, this amount being liquidated by the A.M.P. Society’s payment of £5OOO a month, the- board drawing approximately £l5OO and the balance, £3500, being retained by the bank in reduction of the advance. The amount owing to the bank on August. 19, 1927, when it demanded payment, was £32,224' 13s Id. When the first deed of hypothecation was prepared by the solicitor acting for the bank and the board the rate of interest stated therein was “current rates as fixed by the bank from time to time.” The bank would not agree to this agreement and instructed its Wellington solicitors to prepare a fresh deed of hypothecation, inserting clause (1), namely, ‘That the bank interest on any advance owing thereon shall be at the rate of £6 10s per centum per annum, and payable on the last days of March and September of each year.’ This, we contend, was a fixed trading contract, and agreed upon by both parties. “The bank states that if the rate had fallen the board would have received the benefit of the reduction. If this was their contention, why did they not agree to the first deed, which embodied this provision. However/ the board is not with what might have happened but with what, actually has happened. It will be seen that the rate of • interest stated in the deed—£6 10s per centum per annum—had nothing to do with overdraft ra*tes of, interest, but, was a binding contract. The bank’s action may have been a very serious matter for the district. The possibility of

adding to the present large’, number of unemployed, together with the; reof the ■ board’s operations to the direct detriment of thq farming community, for whom .we are largely functioning, . should not be lightly considered by any institution.” MINISTER'S REPLY. A reply was received from the Minister of Finance through Mr A. M. Samuel, M.P.! acknowledging receipt of the board’s letter complaining that the Bank of N.Z. had demanded repayment of an hypothecated advance on loan account owing to the board having refused to pay the increased rate of interest, 7 per cent., as required by the bank. The letter stated ' that the rate of interest on overdraft was raised by. the Associated Batiks in May last, and the Government had no power to interfere with its trading policy. Approval, of the rate was given under section 114 of the Local Bodies Loans Act, 1926, to those local authorities which applied for the same. The question of the interpre- ■ tation of the conditions of the deed of hypothecation appeared to be one between the board and the. bank. Messrs. A. M. Samuel, F. F. Hockly,

and C. E. Macmillan, M’s.P., advised

that they were willing to go into the with the Minister of Finance on behalf of the board. The; chairman (Mr F. M. Strange) said th'at it sounded all. right, but was not satisfying. He thought the board should hold out in its protest against paying the increased rate of interest. That protest having been made, it was rather difficult to- know what further steps could be taken at the moment. The matter was being f carefully watched by the finance com- ? mittee, and if necessary a special meeting of the board would be held It was pointed out by Mr F. E. Flatt that the head office of the Bank of New Zealand had not had the courtesy to reply to the board’s protest. The Minister of Finance was apparently not greatly concerned with the mat- ' ter, which could not stand as it was. Unless satisfaction was received all local bodies should he called to the aid of the board and the position fought. “The ■ board is no better off than it was a month ago, and it could at least change its hank in the meantime. It is iio use taking the matter lying down," contended Mr H. M. Corbett.

, The manager explained that since the September meeting the National Bank and the Bank of Australasia - had approached in connection with taking over the board’s account and the local managers had forwarded the necessary information to Wellzington. No doubt a reply as to their attitude would be received within the the event of an unfavourable result, and if the board still wished to discuss the bank’s action it would be advisable for the board to send a deputation to Wellington. Mr Corbett thought that the two banks mentioned would be only too plejased to handle the board’s business. On the motion of Mr Arthur it was 7' resolved to write to Messrs Macmil"S’ lan, .Samuel, and Hockly thanking them for their efforts, and also to point out to Mr Macmillan that the of New Zealand had not so

much committed a. breach of contract as it had committed a breach of faith.

BOARD’S ACTION APPROVED,

The Putaruru branch of the Farmers’ Union wrote congratulating the board on the stand it had taken with reference to the bank’s demand, it considered that the board’s action was in the. best interests of consumers, and deserved the whole-hearted support of every local body throughout the country. The letter concluded : “If other local bodies would emulate your board’s example there should be every chance of forcing the banks to revert to the previous rate of interest, which was quite high enough. It appears as if the associated banks run the Government, instead of the Government dictating to the banks what the rate of interest should be/’ It was remarked by Mr W. E. G. Willy that it was comforting to know that the board was receiving Support from at least one local body. This prompted the chairman to remark that, he thought there was little doubt that the board would find it would get any amount of support.