RESTRAINTS ON BANKS

Press, Volume XCIX, Issue 29389, 16 December 1960, Page 21

RESTRAINTS ON BANKS

“Over the last year, the New Zealand economy has gained notably in strength and stability. There is evidence of an improvement in industrial production and business activity, in response to the stimulus imparted by higher export prices and deficit government spending,” says Sir Geoffrey Gibbs, chairman of the Australia and New Zealand Bank, in the bank’s annual report. “Possibly the major factor generating expansion in the economy, has been the strong improvement in the balance of payments, for which the recovery in export prices and reduction in total payments for imports, arising from restrictions and the low level of demand at the beginning of the year, have been responsible," he continued. “The situation changed in the second half of 1960 as the materially higher spending internally was transmitted into a demand for imported goods. . . . “Within this setting of development in the New Zealand economy, the position of the trading banks has become increasingly difficult. The six-year credit squeeze has been achieved by rigid control of interest rates, selective advance directions by the Reserve Bank and the reserve ratio system which has frozen up to 40 per cent, of our assets in a completely unproductive form.”

Sir Geoffrey Gibbs concludes: “The cumulative result of this overlong reliance on restrictive monetary policy has been to impair the ability of the banks to meet the expanding requirements of their customers. The channelling of more and more of the available capital funds into the government sector continually reduces the credit available to farmers, commerce and industry and could well have serious consequences. It is regrettable that the banks are prevented from displaying initiative arid are not allowed to offer their customers the types of modern services so common in other countries throughout the world.”