BANKING POSITION

Dominion, Volume 32, Issue 54, 26 November 1938, Page 12

BANKING POSITION

Drain On New Zealand’s Overseas Funds

DANGER OF EXCHANGE CONTROL

The gradual weakening of the New Zealand banking position was symptomatic of the deterioration in the overseas trade position, said Mr. R. W. Gillespie, president of the Bank of New South Wales, in his address at the annual meeting yesterday. The excess of deposits over advances, which usually moved in close conformity with the balance of trade, decreased by £NZIO million during the year ended June last, and the figures for deposits, based on the trading banks’ monthly returns, fell during the same period by £NZ2.B million. tlie same time advances increased £NZ7.2 million, or 15 per cent., and the ratio of advances to deposits rose from 69 per cent, to S 3 per cent. The banks had proved willing and able to meet all reasonable credit, requirements, but increasing stringency in the cash and overseas funds position might compel a more selective policy.

Net overseas assets of all banks amounted to £NZ2O.6 million at the end of August compared with £NZ32.5 million a year ago and £NZ42,5 million in August, 1935. This downward trend had been due in part to a growing excess of imports which should be corrected to some extent if imports continued to decline in sympathy with the lower level of export receipts. “There can be little doubt, however, that transfers of capital abroad as a result of lhe umittractiveness of investment in tlie Dominion have been large and have accentuated tlie decline in London funds,” said Mr. Gillespie. “It is unfortunately apparent that the Government's internal policy,, by inflating costs and prices and stimulating imports, is obstructing the normal means of correcting a depletion of funds.

“But I must express severe condemnation of any suggestion to improve the position by a measure of exchange control; such a policy would do immense damage to the country’s credit standing and lead to a progressive reduction in overseas trade with increasing embarrassment to the economy.” The question of taxation of banking companies in New Zealand remained as acute as ever, and despite hopes of amendment nothing had been done to alter the arbitrary and unjust method of assessment. The amount, of taxation paid by the Bank of New .South Wales in New Zealand is quite out of relation to the profit made. In spite of the substantial surplus with which the 1937-8 financial year closed, no relief from taxation was provided in the budget for the current year. The continued increase in expenditure when revenue was no longer expanding caused some misgiving, specially as no provision was made for the additional commitments next year under the social security legislation. Another cause for concern was the progressive deterioration in the railway finances. The return on capital invested had fallen from 1.9 per cent, in 1935-36, to .1.15 per cent, in 1937-3 S, in spite of greatly increased traffic. Ou this year’s budget estimates net earnings would fall below 1 per cent, of capital cost, and there was every prospect that tbe new lines at present under construction would also fail to reach a reasonable earning capacity. The growing inability of the railways to provide the interest charge on capital invested meant an additional burden on (lie taxpayer.