The Daily Times. TUESDAY, JUNE 20, 1922. BANK ADVANCES AND INTEREST.

Taranaki Daily News, 20 June 1922, Page 4

The Daily Times. TUESDAY, JUNE 20, 1922. BANK ADVANCES AND INTEREST.

It will have been noticed that a considerable portion of the address delivered by the chairman of directors of the Bank of New Zealand (Mr. Elliot) at the recent halfyearly meeting, related to matters concerning advances and the rates of interest thereon. Inasmuch as the profits made by banking institutions are mainly derived from utilising their clients’ deposits for lending purposes, and turning the money over as frequently as possible, it is natural that the most prominent feature in the business should have been given weight on the occasion. There were also special reasons why arguments should be used in support of the bank’s general attitude towards those needing advances, so as, if possible, to justify the maintenance of the high rate of seven per eent. charged to borrowers at a time when the Bank of England discount rate had been lowered to four per cent., and it may be taken for granted that, the same reasons will stand now that, the Bank of England rate has been still further | reduced, for Mr. Elliot has laid down the principle that it is not the seven per cent, rate that is embarrassing farmers, but the high price of land. That, however, does not apply to the commercial and trading community unless it is contended that it is the high price of goods and not the rate for overdrafts that is at fault. At the same time it is admitted that the bank, during the last two years, “earned” large profits. That is the point, and the question that naturally arises is whether the bank, in face of the hardships which its borrowers had to suffer, was justified in making these “large profits” merely because it had the borrowers at its mercy. In order to arrive at any approximate estimate of the real policy of the directors of the Bank of New Zealand, as enunciated by the ehairman so fully in his address, it is .necessary to grasp the arguments used not only in connection with deposits, advances and rates of interest, but also concerning the moratorium, the question of a State Bank, an Agricultural Bank, and the relation of the Bank of England rate and the ruling rate of interest in the Dominion. It is doubtful whether the shareholders will subscribe to .the view that the' interests of the depositors come first, inasmuch as banks are not brought into being for the philanthropic purpose of nursing and 'fattening the surplus funds of the community. They are just as ranch commercial undertakings as other business institutions, their operations being directed to making profits for the shareholders, and that is their aim—the larger the profits the greater the value of | the shares and the more remuner- | ative these are to the hoi ders. Their duty to the. depositors is merely one of trust —a high trust, on the fidelity of the observance of which the success or failure of the institution depends, as the Bank of New Zealand knows only | too well. There might he some force and conviction in Mr. Elliot’s statement as to the. bank’s first duty being to its depositors, if the latter received a rate of interest for their mfSney corresponding to its earning power, but they do not, and one of the grievances that has long and insistently been voiced is that current account credit balances, no matter how large, are used by the banks without being paid for in interest, though subject to a yearly charge for keeping the account. It is the shareholders who get the profits, a.lhough their capital amounts in the case of the Bank of New Zealand to less than four millions, while the depositors contribute nearly ten times as much. It would . be impossible, in the limited space [ to which these comments must be i confined, to touch upon a tithe of I the details bearing on advances

and interest, and the ingenious I contentions of Mr. Elliot. There i are some phases, however, that can , be mentioned as having a direct bearing on the bank’s general policy. In the chairman’s remarks against the instituting of a State Bank, he contended that if the Government were to place the banks of the Dominion on the same basis as far as rates and taxes are ■ concerned, the bank rate for advances in the Dominion could be reduced to the extent of 34s percent. '* That is a matter on which the public can very well form their 'own opinion. The chairman asks: “Do the taxpayers realise what is I lost to the State in income alone j through the business done by the Post Office Savings Bank and the Advances to Settlers’ Office haying been diverted from the ordinary banks,” and he gives tnat 1 amount as nearly three-quarters of a million. As a matter of fact the public is not' concerned with that detail, being quite satisfied that the benefits received from both those institutions amply compensate—and more —for the comparatively small loss in taxation receipts. The moral to be deduced from this interpellation by the chairman is that if the Bank of New Zealand had the control of financial affairs in the Dominion, there would be no P.O. Savings Bank, no Advances to Settlers Department, no State or municipal industries, in fact no activity touching finance that would not be controlled by the banks. This attitude throws a strong sidelight on Mr. Elliot’s opposition to a State Bank, as well as to an Agricultural Bank, either of which would naturally reduce the Bank of New Zealand’s operations and profits. He cannot be blamed for taking the views he expresses in defending the bank’s policy, neither can he public be blamed for urging reforms that will be in their interest, instead of being unduly exploited as at present. Mr. Elliot must be well aware of the trend of public opinion, and must there fore know that it is only. a question of time when the producers and traders of the Dominion will fix matters financial to suit their ends, so as not to be dependent on banks which make large profits by high rates of interest when money is cheap.