BANK CHAIRMAN’S VIEW.

Shannon News, 20 June 1922, Page 3

BANK CHAIRMAN’S VIEW.

LITTLE REDUCTION POSSIBLE

In his statement at the annhal meeting of the Bank of New Zealand, last week, the chairman of directors, Mr G. Elliot, dealt with the matter 01. the bank rate on overdrafts, which has been 7 per cent in the Dominion for the past 15 months. Owing to the abnormal demand for money by the bank’s customers in New Zealand, in 1929 it became necessary to sell a number of the bank’s ’British investments, which had yielded a high rate of interest. Just prior to that it had discounted some millions of pounds of British Treasury Bills at 7 per cent, the Bank of England rate, and lent the proceeds on overdraft in New Zealand at 6 per cent. In 1915 the New Zealand income tax amounted to 3j per cent on the average advances. For the past year the charge will be 34/. Apart altogether from the general increase in costs, the bank got a smaller net return, on account of the income tax, now than it did in 1915. Seven per cent less 34/ for income tax, Jel’t the band £5 6/ per cent now, as demands upon the bank, customers! against £5 7/ in 1915.

To lessen the demands upon the j bank, customers were urged to sell War Bonds and other investments, to borrow on mortgage of landed property, and also-, in the case oi joint .stock companies, to get in uncalled capital. Times, however, were bad; War Bonds were at a heavy discount, and most investment shares had fallen considerably in value. Mortgage rates were as high, or higher, than the overdraft rate. The response, therefore, to- the bank’s request to take measures to restrict demands upon it was, for the most part, disappointing. Certain critics seemed to have lost sight of the conservation of capital that’ the generous support given by the bank has effected, whereby customers had been enabled to postpone realisation of assets pending improvement in values. It is not the 7 per cent rate that is embarrassing farmers —who are the chief complainants—it is the ridiculously high price that, in many cases, was paid for land, which not infrequently is mortgaged for more than its actual value. Another cause is that far larger areas were bought than the purchasers’ means warranted, in still other instances, mortgagors, in order to secure a low rate of interest, borrowed on mortgage sums which gave them no margin of funds to meet* contingencies, and cannot now obtain further advances from the mortgagees. Realisation of the whole or portion of their land is the solution of the difficulties, and not a mere reduction of their interest charges.

The minimum rate of interest with in the Dominion on mortgages and other advances may, until, the end of 1924, be regarded as 6J- per cent, Parliament having fixed that figure as the rate on mortgages covered by the Mortgages and Deposits Extension Act of 1921. The minimum overdraft rate is usually l per cent or 1 per cent higher than the mortgage rate, as interest is charged by the banks only on the daily debit balance, and not on the amount which the customer has the. right to draw to.

It is the desire of the banks to reduce the overdraft rate, and the sooner customers reduce their overdrafts to normal figures, the sooner the rate, of interest will come down.