FINANCE TO-DAY.

Taranaki Daily News, 18 June 1921, Page 8

FINANCE TO-DAY.

tew ZEALAND’S POSITION. FINANCIAL AND ECONOMIC. REDUCED EXPORTS: INCREASED IMPORTS. INTERESTING OBSERVATIONS. Wellington, Yesterday. In his address to the annual meeting of the Bank of New Zealand to-day, the chairman (Mr. Harold Beauchamp) said:— The conditions in New Zealand reflect in some degree the adverse factors ruling in Britain, and disclose features peculiar- to the country. The scarcity of merchandise in New Zealand, due to the transport and other difficulties arising out of the war, induced importers jfco lend abroad orders much in excess ot requirements. These orders, instead of being executed over a considerable period of time, as was anticipated, were dumped on the country in a few short months, with the result that the imports into the Dominion were on a tremendous scale. At the same time, owing to the Imperial Government discontinuing the purchase of wool and meat, and the slump in the market value of these goods, there was a contraction bp the exports. Shipping difficulties also rendered" th® position serious by tampering the export trade. The imports for each month of the rear ended 31st jMarch last, compared *wxth the figures for the immediately preceding year are as follows:

The imports increased by the huge eum of £35,301,240, pqua] to about 110 per cent. This means that we have imported in one year more than sufficient to meet requirements for two years; and the distressing fact is that most of these goods were bought at peak prices. The imports during the year under review cost more than three times as much as those of any yeAr prior to 1916. The principal increases during the year, as compared with 1919, were:— Soft Goods £9,456,000 Hardware, etc. 4,702,000 Gen ere 1 Merchandise 6,428,000 Benzine, etc 1,447,000 Motor-cars and other vehicles .... 1,832,000 The exports during the same period contracted, and the figures compare as under.— 1919- 1920-21 £50.776,650 £48,199,329 ' There is a decrease of £2.577,321, ■which is not very much. If we take the exports and imports for the year ended 3lst March last we get the following:— Exports. Imports. 1920- 1920-21. IMPORTS EXCEED EXPC RTS. £48,199,329 £67,463,269 The imports exceeded the exports in the twelve months by the substantial sum of £19,263,940. It must be borne in mind that, besides paying for the imports, we have to pay interest on public and municipal indebtedness to Britain out of our exports, also large sums for freight. Insurance, and other charges. It will, therefore, be seen that we were very much to leeward in the year under review. It must also- be remembered that the total represented by the exports was not all .available to provide funds for the inward trade, for it includes a good deal of produce purchased and .previously paid for by the Imperial Government. The new conditions that have arisen have brought about a scarcity of loanable credit, with the result that interest rates have materially hardened. On first-class -ecurity, money is not very readily obtainable cn mortgage at even 7 per cent., and Government Bonds have recently been bought in th. open market at prices which will yield the investor from six to six and three quarters per cent. As a consequence of this, the rates charged on bank advances and those allowed on fixed deposits have beer, increased. Almost immediately after the Armistice. the local bodies throughout the Dominion took stock of the works needed in their respective localities, and as guickly as possible set about obtaining the authority' of the ratepayers to raise loans for local public works. These authorities ran into many millions. and those who were fortunate enough to go on the market in 1919 and the first half of 1920 obtained the money they required at 5| per cent. Later .on. it became difficult to obtain money at so low a rate, and local bodies had to offer the full rate then permitted by Statute, 5$ per cenw. When this was found ineffective, the local bodies were given authority to offer 5% per cent., and. in some few recent cases, to sell debentures at such a price as to yield the investor 6 per cent. But even this rate is not attractive, in view of the return obtainable from purchases of Government Bonds, and of fact that sound commercial concerns are offering bonds at par at as high as 74 per cent., free of income tax. The scarcity of credit led to another unexpected development during the short session of Parliament in March last. When our half-yearly meeting was held in December, 1907, —more than thirteen years ago,—a monetary crisis in the United States of America was one of the outstanding topics of the time, and was alluded to in the remarks which I addressed to the shareholders upon that occasion. MONEY ON DEPOSIT • In view of the experiences through | which the United States had just been passing and their evident causes, 1 . /sounded a note of warning in connection ihe ftctjgn of several large

in New Zealand which were making a practice of receiving deposits from the . public while holding no reserves in the shape of liquid or readilyrealisable assets to meet these deposits when required. Those who were present were asked to picture what would happen if. during a period of depression, these companies were called upon to discharge their Obligations. Sincd that time, the system to which reference was made has be come much more widely spread. Not only public companies, but private concerns and local bodies of all kinds have adopted the practice of obtaining from the public loans which they called ‘‘deposits/’ and which the lenders no doubt regarded as being as readily availatflc as deposits held by the bank. In most cases these deposit-receiving concerns had no liquid resources whatever, but were borrowing money in this fashion in order to keep their overdrafts down, or to finance transactions in which their bankers would not have assisted them. It is probable that deposits of this ' kind amount to not less than £10,000,000. Now that the prosperous times of the ( past few years, with their abundance of , money, have ended and there are many ’ opportunities of obtaining highly re- ‘ munerative investments, there has na- ' turally been a very considerable withdrawal of deposits held by these com- ' panies and firms. The banks in New Zealand found some months ago that they were being approached on every hand by their borrowing customers with requests for in- * creased accommodation. These requests ' were assuming in the aggregate very large amounts, and it became evident r that discrimination must be exercised, not so much with regard to the safety } of the desired advances (as to which , there was usually little doubt), but as r to the objects for which they were asked. A large number of such requests were being made in order that the applii cants might repay the deposits which . they had taken and which were being called for by the depositors. Had such * applications been granted by the banks, 5 they would not have been able to meet [ the legitimate requirements of the farm- . ing and commercial community, and the ; banks therefore notified tWeir borrowing » customers that the arrangements beJ tween them were not to be availed of * for the purpose of repaying such de--1 posits. J r THE MORATORIUM.

Such a step on the part of the banks undoubtedly placed many trading concerns and local bodies in a very difficult position, but it was felt by the banks, with a deep sense of responsibility to the community as a whole, that the course which they were taking was a wise and proper one. As a consequence of this, I understand that some of the concerns which had taken deposits and could not repay them without that assistance from their bankers which they were unable to obtain, laid the position before the Government, with the result that on 21st March last, Parliament passed an Act extending the Mortgages Extension Act by declaring a moratorium until 31st May with regard to all deposits except those held by the associated banks and the savings banks, and providing that the borrowers could, by giving notice to the lenders before 31st May, and offering a higher rate of interest, postpone payment of such deposits until 31st December next.

We understand that this latter provision has been widely taken advantage of, and that most deposit-receiving companies and public bodies have notified depositors, whose money is at call or would in ordinary course be repayaoie before 31st December next, that repayment will not be made until that date.

It is generally’ - believed that, when Parliament next assembles, some legislation will be introduced to compel those who accept deposits from the public, to do to some extent what banks are requires! to do—hold a reasonable proportion of these deposits in a form more readily available than if the money is used as business capital.

To make provision for repayment of their deposits, some companies are rafting the necessary' funds by the issue of bunds at from 3 to 10 rears’ currency;

•liters, no doubt, will get in uncalled capital; and some may’ require to issue preference shares.

Whilst a certain amount of inconvenience is being experienced by some of these depositors, it is unlikely that any lof them will suffer loss, and in the long [ run the result will be a much-needed i mprovement in the conduct of the finances of these deposit-taking concerns. PUBLIC THRIFT. The registration of mortgages and discharges have greatly increased, and ' the figures for the year ended 31st March compare as follows with those of the previous year: 1919-20. 1920-21. £ £ Registered 48.442,900 66,960,434 Discharged 23,086,746 29,463,662 t£ 25,356,154 £37,496,572 The borrowings on mortgage during the past two years have been on this scale owing to the numerous property transactions in cities and the country, and to the inflation of land values. During the war, and since, there ha* been a noticeable yearly expansion in the business of the Post Office Savings Bank as the table appended shows:—

It will be noted that while the deposits last year were double those of 1918, the withdrawals were considerably more than double, so that the actual saving was considerably less than in 1918. But those who make use of the Post Office Savings Bank are apparently beginning to feel the effects of the changed conditions, and this is exhibited by the returns for the March quarter when compared with the corresponding quarter of previous years as follows: March Excess of

Notwithstanding the fact that the maximum amount of a deposit account was increased as from Ist January, the amount saved in the past quarter was about .45 per cent, of that in 1920, and more than 33 1-3 per cent, of the

figures of 1919 and 1918. The total amount, at credit of depositors at the end of last March was £42,953,028, equal to £36 per head of the population. DOMINION PUBLIC FINANCE. The '•> results shown in the National Balance-sheet for the financial year ended 31st March last, .were as follows: Revenue £34,192,986 Expenditure ...-m 28,068,728 Surplus . £6,124,258 Both revenue and expenditure are record figures, and their magnitude is best illustrated by a comparison with the returns of the past few years, thus: — Year ended Excess of 31st March. Revenue. Expenditure. Revenue.

All sources of revenue, except National Endowment, exhibited increases, but the principal gains were in Customs, £3,576,401; Income Tax, £1,879,180; and Railways, £1,152,477. The growth under these three heads is not surprising. I have shown already the imports into the Dominion during the past, twelve months have been exceptionally heavy, and the Customs revenue has naturally benefited._ The increase in income tax was the~result of the handsome profits and high returns obtained for produce during the preceding year, and that in the railway revenue, of a re-arrangement of fares and freights* which took effect during the year. The annual surpluses, beginning with 1916, have been exceptionally large, but practically the whole of the realised surplus has been disbursed or allocated, and. very little remains, so that, in the present and subsequent years, we must rely upon current revenue to meet each year’s disbursements. It has been publicly stated that there will be a shrinkage in the revenue during the coming year, and that seems inevitable. The Customs revenue must shrink, as imports must be on a smaller scale and at lower values than during the past financial year. The profits of traders must be on a lower scale; it will probably be found that most of those who made up their accounts during the later months of the financial year have found their stocks so reduced in value that the year’s trading will show little or no profit. This wall cause a reduction in income tax collections. The expenditure, however, is not likely to show the same relative shrinkage as the revenue for whatever minor savings may be made in departments, will be more than lost in the increases in the permanent appropriations. THE' PUBLIC DEBT. The public debt is steadily increasing, and the position is shown in the following table:

The debt now must be over £200.000,900. During the past financial year £7,831,593 was paid in respect to interest and sinking fund as compared with £2,871,512 charged in the year 1913-14. There was paid in pensions during the past financial year £2,812,750 as against £2,691,444 in the previous

Imports . Imports * 4 1919-20. 1920-21. £ £ {April ’,245.153 4,268,4 M Ofay 4,902,668 1,972,235 5,236,541 jply .., .«••••. 1,707,276 5,143,698 2,193,235 6.167,946 September ,, , 2,616,091 7.669,326 October 2,870,767 6.386,252 November •••••••• 2,825,806 5,991,703 2,582,021 6,038,229 ,r,,, r - - T 2,945.537 6,664,574 February 2,983,303 4,329,268 3,862,221 4,664,660 £32.162,029 £67,463,269

Excess of Deposits. Withdrawals. Deposits. £ £ £ 1913 11,286,702 11,041,454 245,248 1914 . 11,904,323 10,603,018 1,301,305 1915 ...... 13,706,057 11,294,973 2,411,084 1916 15,576,408 12,657,420 2,618,988 1917 ...... 17,106,529 14,461,169 2,645,360 1918 . 18,101,105 14,938,842 3,162,263 1919 29,758,448 25,962,378 3,796,070 1920 36*409,494 33,660,771 2,748,723

Quarter. Deposits. Withdrawals. Deposits. 1918 .... 4,434,731 3,349,323 1919 .... 5,865,478 4,829,473 1,036,005 1920 .... 9,271,609 8,358,598 913,011 1921 .... 7,893,358 7,501,715 391,643

iarcn. revenue. Jt £ xpenuuure. £ £ 1914 12,229,661 11,825,864 40*3,797 1915 12,451,945 12,379,803 <&,142 1916 14,507,530 12,493,107 2,014,423 1917 18,355,194 14,058,770 4,296,424 1918 20,206,222 161120,288 5,08-5,934 1919 22,352,372 18,673,599 3,678,773 1920 26,081,340 23,781,524 2,299,816 1921 34,192,986 28,068,728 6,124,258

Year ended Net Per head of 31st March. Indebtedness. Population. 91,689,835 84 2 8 1915 90,644,455 87 16 3 1915 105,957,433 96 5 9 1917 125,572,515 114 0 9 1918 145,868,450 132 0 8 1919 170,125,204 ' 151 5 6 1920 >193,913,191 165 3 1