FARM FINANCE

Wairarapa Times-Age, 10 June 1938, Page 3

FARM FINANCE

POSITION IN DOMINION

POLICY OF THE TRADING BANKS MR A. T DONNELLY’S SURVEY (By Telegraph—Press Association.) WELLINGTON, This Day. “To an extent that has no parallel in most countries,” Mr A. T. Donnelly, chairman of directors of the Bank of New Zealand, observed in his a'ddress at the annual meeting today, “the trading banks of New Zealand have provided finance for farming industries and have thus varied the practice common to most overseas banking institutions. Such an adaptation to the particular requirements of the country has, however, proved both necessary and desirable and may, under the influence of changing conditions, require further extensions in the future to other fields of production The special direction in which such finance may be required and the extent to which it can be provided by-the trading banks will, naturally, depend mainly on Government policy. The board takes the view, however, that while it may legitimately discuss such changes as a possible contingency, 'it is not in a position to define the extensions or variations of financial procedure that may be required until Government policy affecting the development of industry has been more fully stated.

“Nevertheless certain changes in banking practice are gradually occurring under the pressure of altered economic conditions and of legislation. It would appear 'highly probable that the mortgagors’ relief legislation has adversely affected, the availability of mortgage money and that consequently the trading banks have been called up to provide a considerable amount of 'finance which previously had been obtained from private lenders. The legislation has also affected the essentian nature of overdraft accommodation, which under many decisions of relief tribunals has ceased to be a demand liability but has been fixed for long periods of years. It is true that similar arrangements have been frequently entered into voluntarily by the bank since the introduction of the legislation, to concede by settlement the relief that, in our opinion, would have been granted by the commission. “One development to which attention 'may be drawn is the concurrent increase in advances and decrease in fixed deposit. The ratio of advances to deposits (both fixed and free) for all banks has in twelve months risen from 71 per cent to 81 per cent. This increased ratio is due party to an absolute increase in the volume of advances and partly to a decline in deposits. To some extent the decline in fixed deposits is accounted for by withdrawals . of individually small sums for. transference to the'Post Office Savings Bank, where a higher rate of interest can be earned, but there is a drain due to'the lifting of larger deposits'for investment purposes. Many businesses, Which in the period of depression were unable to find satisfactory investments for their surplus funds, 'placed them on deposit with the 'banks and have, under expanding trade conditions, since withdrawn them. “The banks’ liquid assets available for lending are represented mainly by the funds they hold at the Reserve Bank in exdess of statutory requirements, and by their requirements, and by their resources in London which are in cash or readily convertible into cash. Provision, however, has also to be made to some extent from these assets for an adequate cash reserve against deposits. If for any reason such resources are permanently diminished, the banks’ ability to lend is, of course, affected.” h . ...