NEW ZEALAND BANKING

Evening Post, Volume CIII, Issue 140, 16 June 1922, Page 6

NEW ZEALAND BANKING

Included in the important subjects dealt with by the Chairman of the Bank of New Zealand, Mr. George Elliot, in his address .to shareholders to-day, were the current rate of interest on overdrafts and establishment of a State Bank. Mr. Elliot, evidently appreciating the great public interest in these .questions, seized the opportunity afforded by the annual meeting of the Bank to explain and justify what is probably the attitude of the banks in New Zealand as a whole towards these matters, although in particular he defined that of the Bank of New Zealand itself. He did not specifically mention the Commonwealth Bank of Australia, but contented himself with reference to " one State Bank in Australia." We take it he meant the Commonwealth Bank, as that institution is so frequently held up as an example. / The raising of the minimum rate of interest on overdrafts to 7 per cent., as Mr. Elliot showed, was inevitable, and due to a variety of causes. Reluctant as they were, he said, to do so, the banks—for they acted as one in this matter—were forced by inexorable circumstances beyond their control to raise the rate. He fully explains why the Bank of England discount rate, which was reduced from 4 per cent, to 3i per cent, as from yesterday, has little, if anything, to do with the monetary situation in New Zealand. As a matter of fact, when the New Zealand overdraft rate was 5j per cent., the Bank of England rate was 7 per cent. It is regrettable that matters were in such a condition in New Zealand that the rate had to be raised, but there does not appear to have been any other way open to the banks. Here it may be helpful to recall a remark made by the British Trade Commissioner in New Zealand, in reporting to the London Board of Trade on affairs in this Dominion: " There have been.no disasters." If the 7 per cent, rate accounted for that fact, and achieved the doublebarrelled purpose of reduction in overdrafts and conservation of capital, it would appear to have been fully justified. As for the State Bank idea, it is one that readily fires the popular imagination, Avith a great institution, just across the Tasman Sea, that started nine years ago without a penny of capital, and now has a surplus of nearly £4,000,000. But that bank began as no other banks in Australia ever did. They were all handicapped at the start. Nor did they commence with the entire backing and business of the State, which the Commonwealth Bank has always had; nor were they immunised from taxation. But, as Mr. Elliot showed, the Bank of New Zealand, during the same period that the Commonwealth Bank has been in operation, has paid to the State £2,171,000 in dividends and taxation; and, besides, the Dominion Government holds ia the Bank of New Zealand, as a going concern, good'win interests worth at low valuation £1,600.000. Under the existing system, the Government reserves such control over the Bank of New Zealland, and has such a large interest in the Bank, that it must be regarded as at least a semi-State Bank. Whether one believes or does not .believe in State banking as a general principle, the practical question to-day is whether it would

pay the Government to surrender in annual taxation a big sum (far too heavy for land tax or income tax or Customs to carry) in return for a State Batik. To-day the occupation of a banker is not entirely rosy. Does the initiation, in these pircumstances, of a State Bank constitute better business than the retention of the Government's interest as tax-gatherer ?