Defence of Banking Policy

Sun (Auckland), Volume 1, Issue 73, 17 June 1927, Page 8

Defence of Banking Policy

State Collects Half a Million A COMPARATIVE criticism of the Post Office Savings Bank—one of its chief competitors—is one of the features of the Bank of New Zealand’s annual report, presented to shareholders at Wellington to-day. Sponsoring tine report, the acting-chairman, Mr. Richard W. Gibbs, devotes .considerable space to a justification of the rise in the interest rate charged against advances.

TAEFENDING tile six New Zealand 1 ’ joint stock tanks against the popular charge that they operate beneath the shelter of a monopoly, Mr. Gibbs points out that savings banks —such as Oe Post Office and Auckland Savings Banks—as well as individuals who borrow and lend money between themselves —are competitors of the joint stock banks. Further, there is nothing to prevent the formation of new banks, provided the banking laws of the country are complied with. Having dealt with the recent increase in the bank-rate —claiming

that, for the sake of economic stability, the banks had to choose between an endeavour to attract additional deposits and a demand for the repayment of a considerable volume of advances, anci that the latter course w.ould hate meant disaster to many traders—Mr. Gibbs appears, inferentially, to attribute part of the blame to the Post Office Savings Bank, “The rates of interest offered by the Post Office Savings Bank.” says the report, “have for years past had the effect of attracting to that institution considerable funds which would

i more properly have been placed on fixed deposit with the joint stock ! hanks, in whose h£.nds the money | would have been available Tor ordinary trading purposes.” The growth of deposits in the Post Office Savings Bank is shown to have been 116 per cent., against 52 per cent, in the rase of the joint stock banks, between 1915 and 1923, thus amply illustrating the increased popularity of the former institution, and supplying some evidence that the monopoly of the privately-owned hanks is being seriously invaded. Nevertheless, the Bank of New Zealand is managing to distribute among its various shareholders, for the year, the sum of £971,51 1 3s iOd, with £554.655 12s lOd carried forward as undivided profits. In its report the Bank of New Zealand takes opportunity to condemn the State bank system—citing the Australian effort as an example—and goes on to state that when the New Zealand Government receives, to-morrow. its dividend of £232,12S on its shares in the bank, its total revenue therefrom for the year will be raised to £530,046. The balance, however, is in taxes. > “None of the ordinary shareholders,” Mr. Gibbs is sure, “begrudge the generous reward to the Government for its services,- by way of guarantee at a critical time.” RAISED ADVANCE RATES Discussing the rise in advance rates, the report deprecates comparison with the simultaneous fall in the Bank of England rate, as there is little co-re-lation between the two, the Bank of England rate being the best rate for the discount of gilt-edged commercial paper, while the New' Zealand advance rate is for overdrafts. What was the position the hanks were called upon to face? The banking returns for the quarter ended March 31, had disclosed an increasing excess of advances over deposits. The economic position of the country had been affected by a reduction of approximately £10,000,000 in the income for 1926, and there was grave necessity for general thrift, and economy. In the banking figures themselves, for the past quarter, there had been an advance movement of £4,289.335, and to meet the situation the banks had found It necessary to offer more attractive terms for long-dated fixed deposits, with the usual corresponding increase of half per cent, in the interest rate charged for advances.