BANK EXTORTIONS.

Auckland Star, Volume LXVIII, Issue 25, 30 January 1937, Page 13

BANK EXTORTIONS.

BRAZIL'S BAD EMINENCE. RUINOUS CREDIT CONDITIONS. RIO DE JANEIRO. An investigation by Congress into the high interest rates charged by banks in Brazil—alleged to be the highest in the world —has centred attention on a situation which i 9 blamed for pushing many industries and business houses into receivership. All banks are guilty of the high rates. The Bank of Brazil, official banking institution of the country, as well as American, Canadian, British, French and Portuguese establishments operating here, charges from 10 to 12 per cent a year for loans and discounts. This does not include commission fees, stamps, and other expenses which bring the rate to as high as 1A per cent a month. Only leading banks, however, charge these rates. Smaller institutions ask 18 per cent a year without a blink, and many organisations open their safes only to customers needing monej' so badly they will pay 2 to 3 per cent a month. Relatively speaking the 10 to 12 per cent charged by the larger banks is often considered accommodating by industrialists and merchants who must discount their customers' papers because of the long credit they are forced to grant in order ot sell their merchandise. But few businesses can really afford to pay 12 to 24 per cent and more a year for loans. Radio sales provide a typical example. Importers, largely American and European concerns, sell their radio sets to distributors who riust pay for them in 120 days. The distributors are compelled, due to competition, to sell I most of their sets on time payments! extending over one to two years. Thus j a distributor has to borrow to pay the importer, and, even though a gross profit of 45 to 50 per cent on the cost price is possible, many cannot afford consistently I to pay the high interest rates now 1 charged. Hardly a month passes that a radio distributor does not go out of I business. Some observers maintain that the credit condition is aggravated by the tendency of wealthy people to keep their cash idle in bank accounts, unwilling to lend unless they can get returns that in other countries would be illegal. President Oetulio Vargas has often urged in messages to Congress that energetic measures be taken to enable the Bank of Brazil to modify to a certain extent its present banking system by establishing special departments capable of co-operating with industry, commerce and agriculture whose efforts are hampered by the high cost of credit. Proponents of that or similar legislation assert that there is enough idle money to relieve the Situation, if it were put to work. The currency in circulation in this country totals 3,700,000 centos of reis ( £44,800,000). It is held that if interest and discount rates were reduced idle money would find sound takers and that this would aid in further developing the country's natural and industrial possibilities.