CRITICAL TIMES

Evening Post, Volume CIV, Issue 144, 15 December 1922, Page 7

CRITICAL TIMES

HOW, THE BANKS ACTED

COURSE THAT WAS ADOPTED

FARMERS MUST OUT LOSSES.

It was only natural that Mr. George Elliot, as the chairman of the- Bmk of New Zealand, should make specjal reference at the half-yearly .meeting of the bank to-day to recent financial events. They would all remember, he said, that early in 1921, as the result of excessive importation of goods, and of the heavy fall in the value of many of the primary products, the Dominion was faced with a financial crisis, the severity of which could be estimated only by those responsible for the financing^ of this whole country's business. There were two methods of meeting such a crisis: one was to keep interest rates low and to lend sparingly; the other was to lend freely, even up to the limit of a bank's resources, at the same time increasing interest rates so aB to compel realisation of assets, and-thus get back to' a normal position as quickly as possible. "We, in common with the other banks here," Mr. Elliot continued, "took the latter course, with the result that almost all the business houses in the Dominion have weathered the storm with a success that has reflected the greatest credit on the financial stability of the country. Had we kept interest rates down, lent sparingly, and placed money in first-class Government securities that would have yielded a high rate of interest for many years to come, the bank would have benefited, but the country .would have^ experienced a far-reaching collapse."

.NEAEING NORMAL.

It was satisfactory to be able to say that.the country was getting nearer to its normal proportion between the deposits and' advances in the Dominion. "The end of the half-year 'sees our current account credit balances standing at practically the same.figure as that with which it began, while there is an appreciable increase in the amount of our fixed deposits," Mr. Elliot points out. "The. greater, portion .of that increase, however, consists mainly of sums which have Ijeen left with us for a short period only. ■ On the other side, our advances show a decrease of about two and a half millions. As' far as they go, the movements in these figures are in the right direction, but, until more has been' done to restore a better relation between deposits and advances, the necessity for keeping a tight hand upon our lending business will be evident."

BUSINESS CONDITIONS.

Retail traders have done fairly well during the past six months, Mr. Elliot remarked, but maijy; wholesale houses have not yet returned to a profit-ear-ning stage, though better times are, in sight. Farmers' were still, feeling the pinch, but for them, too, the outlook was improving. All classes pf wool were now commanding increased prices, the , market for lamb was exceedingly good, mutton was at a fair. price,' but beef, unfortunately, was still nnremunerative. Dairy produce was selling at figures as high as- could ■ reasonably be looked for. Indications pointed ■ to a good season in the way of production, weather conditions over the greater portion of the Dominion having been favourable. The recent reductions in taxation, shipping charges, and interest afforded some measure of relief to -all classes of the community. . ■ The financial difficulties of individual fai-mers were refleoted in the affairs of many of their co-operative companies, which had not only become involved in heavy losses, but "had also locked up large sums in advances that for some time to come could be liquidated withoutfurther losses being incurred. In the interests of these companies, Parliament last session passed legislation empowering a majority of creditors to stop any minority attempting to force an embarrased company into liquidation, the, aim of such legislation baing to minimise the losses that the companies must inevitably sustain. While legislation of this nature might, under stress of exceptional circumstances;, be warranted, one must not forget that it involved a risk of damaging the oxedit of the Dominion. Interference by statute with the normal conduct of business is highly i .dangerous, and should as far as possible be avoided WILD SPECULATION IN LAND. During the last ten years there had been much wild speculation in land, and even conservative men had been led into buying far greater areas than their means warranted. Many who bought eaily were able to realise at a profit, but these frequently used their original capital— plus profit—to buy more land. Prices of products "soared, and land values followed suit, the best land going to unheard of prices. In 1920-21 the value of primary produce slumped, and the value of land fell with it.

"Many of our farmers, at the present "moment, financially embarrassed because they hold more land than they can profitably work," Mr. Elliot went. "No doubt they bought those large areas in the hope of selling at a profit, and they hesitate to, make the sacrifice which ths sale of the whole or part of their land involves. The only remedy for them is to cut their losses by selling a portion of their land, even at a drastic reduction on its cost, keeping only as much as they can manage properly, and finance comfortably."