OVERDRAFT RATES.

Taranaki Daily News, 5 May 1922, Page 5

OVERDRAFT RATES.

BANKS AND PRODUCERS. CASE fOR THE BANKS. “That this meeting of dairy companies brings under notice of the Government the excessive rate of interest? charged by the banka operating in New Zealand, such high rates being reflected in rates of interest charged by other financial institutions. This, in face of the Home money market and the severe financial stress of dairying and other primary industries of fhe* Dominion. We submit that the associated banks should make a substantial reduction in the rate of interest now charged. We solic&h the kindliest assistance of your Government in the matter.** The above resolution was carried afi a meeting of directors of dairy co-opera-tive companies, held at Hawera recently. It was not the main object of the meeting which was called to consider a compulsory pool of all dairy produce intended for export. It is probatble that the Haw era resolution relating to interest on bank overdrafts will be expressive of the opinions of many co-opera-tive dairy factory directors and echoed at subsequent meetings to be called to consider the dairy produce pooling scheme. Should that be so, then some comments made by bankers to a representative of the Wellington Post should prove instructive. It was explained to the Post representative by the head of one of the banks that the institutions trading in New Zealand are not charging more than mortgage rates on their advances to customers; furthermore, the interest charged on advances on overdrafts is levied on the daily balance, and not on the lump sum, as is the case with mortgages. Almost everywhere else, excepting Australia and New Zealand, the borrower from a bank has to take money for a fixed term and pay interest on it during the whole of that period, whatever it may be. It was also pointed out that the income tax paid by the banks trading in New Zealand is at a far higher rate than the income tax paid on derived from mortgages. In round figures, the income tax paid by the banks is equal to per cent, of their advances. SOME CONCRETE INSTANCES. As to the case of the dairy farmer and some other producers, it -was remarked by a banker that high interest rates on bank advances could not be regarded as very serious factors in dairy companies* affairs. He quoted at random the figures of three North Island dairy companies who have accounts with the bank with which he was connected.

“One of these,” he said, “has a limit of £14,000, and is frequently allowed to exceed that amount. A half-year's interest at 7 per cent, upon £14,000 will amount to £490.” As a matter of fact, during the half-year to which ne was referring, the company paid £lB3 in interest. The second company referred to had a limit of £12,000; instead of £420, it paid £220. A third, with • limit of £5OOO, instead of paying £WO» actually paid £75. Referring particularly to Taranaki this authority remarked: “The position in that district is due, not to high rain of bank interest, but to the excessive prices paid for land, much of which is mortgaged far above its full value; also to failure to provide, during the many prosperous years that that district has for the lean years to come, that always come; that have, in fact, arrived; finally, personal extravagance is n factor that canont be left out in considering the present financial situation in Taranaki and other dairying districts/*

TOO MUCH PAID FOR IaAND. So far as the Post could a reduction by the banks in the rate of interest on overdrafts would not retrievn the position in Taranaki or elsewhere. What was considered necessary was tha£ the price of land should be reduced to its productive value. “Persons and companies,” it was said, “should not involve themselves in debt beyond what their means will permit; and besides, they should exercise the strictest, the severest economy in every direction. That is the true solution of the present problem confronting dairy companies and producers generally.” ,v l'he banks have been assisting the public, and will continue to do so to the utmost limit of their resources,” was added. “In the general interests of the country they are actually taking risks in these times of stress that they certainly would not entertain for a moment under normal conditions of finance and trade. It is inevitable that some losses will be made. These, in the interests of tbd community at large, must be provided against in the rate of interest to be charged on advances. What the producer needs to-day is the maximum of financial assistance to enable him to weather the storm. In the present conditions, then, the current rates of interest on advances are not unreasonable. When one sees things as they really are to-day in New Zealand, 7 per cent, is not only reasonable, but the rate itself . becomes of comparatively little ment.”—Wellington Post.