PRIVATE CAPITAL.

Auckland Star, Volume LXVI, Issue 39, 15 February 1935, Page 9

PRIVATE CAPITAL.

. TO GIVE CONFIDENCE. POSSIBLE LENDING RATE. " LOWEE THAN STATE ADVANCES." (By Telegraph.—Parliamentary Reporter.) WELLINGTON, this day. Stoutly defending the introduction of private shareholder capital in the Mortgage Corporation, Mr. Coates declared that the main essential was to give a sense of confidence to the inves- . tor, since upon that would depend the success cf the new organisation. He scid the lending margin should be safe and the risk well spread. If the risk were well spread, if management were fair and if proper attention were given administrative costs, the organisation should be wide and strong enough to command the confidence of those with money to invest. Adequate reserves would be built up. Any loss that might occur to those mortgages handed over from the State Advances Department [ would be guaranteed by the Crown. The intention was to establish a sound organisation which would meet the requirements of those for whom" it was urgently necessary to find finance at a cheap rate. Mr. Coates said he would describe the bill before the house ae the "a' bill. ; The "b" bill, dealing with the rehabilitation of farmers' finance, would appear next week. Mr. H. T. Armstrong (Labour, Christchurch East): Call them both "b" bills. The Corporation's Business. "I don't want to be rude," retorted the Minister, who said that the , ! "a" bill envisaged the handing over to the corporation of 1 about '£50,000,000 'of mortgages held by the State Advances Department, the Lands Department and the discharged soldiers settlement scheme. It proposed to include £2,500,000 of local body reserves, which would be repayable out of the profits made by the corporation over a long period of years, or as soon as the corporation could meet the charges. Then there would be the reserves accruing in the form of repayment of principal, ami there would be new business coming in under the arrangement whereby the borrower subscribed 2 per cent, or, if it suited him, had that amount added to the loan. If it were found necessary to provide further reserves, the crown would find all the reserves necessary. Dealing with the criticisms of the private shareholding provision, the Minister said: "The idea in having private shareholder capital is to give a sense of confidence to the lender. Some say there is no need for that, but I am bound to say that to give that feeling |of confidence to the investor is the keystone of success of this organisation." Maximum Dividend. Replying to interjections, Mr. Coates said the maximum dividend would ba 1 per cent over the bond rate. Mr. Samuel: Will not investors be "bulling" the bonds to keep up the rate of interest? The Minister said it was essential that there should be created an organisation that would get us near as possible to gilt-edged rates. If the money could be obtained at 3 per cent or 3i per cent, it should be possible to lend that money to the farmer at £4 15/ per cent, after allowing for the management and repayment of principal over a long period. That, of course, would be the lowest rate, and it was better than the State Advances was lending at to-day, or had ever lent at. The rate, of course, might run up to 5 per cent. He felt certain it would be possible to get the administrative ' costs below 1 per cent. Mr. Armstrong: Can't you get money without borrowing it? . Mr. Coates: Would you call that borrowing money ? Mr. Armstrong: I would use the State's credit, and create it.