BANK LONG TERM LOANS

Evening Post, Volume CXII, Issue 134, 3 December 1926, Page 9

BANK LONG TERM LOANS

TAXATION LIABILITY

STATE'i LIMITED DIVIDEND A FACTOR

WATERTIGHT BUSINESS WITH INDIRECT PROFIT.

This> is believed to bo the first instance of an ordinary joint stock bank in any part of the world creating a special department for this (long term loan) class of business, and the experiment will, doubtless, bo watched with keen interest by bankers generally, and especially by bankers in countries that specialise .in primary production. In th©-_bove words the chairman of directors'of the Bank of New Zealand, Sir George Elliot, referred to the new long term loan scheme at the half-year-ly meeting of the pank of New Zealand to-day. The chairman prefaced his remarks by reminding shareholders that "the proposal discussed at our annual meeting of setting up a special department for- the making of long-dated loans on an amortisation basis, was considered by Parliament last session, and, as you aro aware, an Act known as the 'Bank of New Zealand Act, 1926,' was passod giving the bank authority to_enter into this class of business. A3 a resume of this Act has been circulated* amongst shareholders, I need not go over tho various clauses. "You iWill remember that the directors were.authorised to issue £1,406,250 j in £1 shares, together with three times that amount by way of debentures. As a beginning half of this number of \ shares are now being offered to shareholder., ? and applications for their individual quotas are receivable up to the 31st December next. The other half will be issued later if, and when, the demand ;ifor loans of this description warrants'it. Debentures will be issued as funds.are required for tho development of the business. "You will also remember that when the scheme was discussed at the. annual : meetings jt was with the hope that Parliament Would agree to mako some special reduction in the income tax in connection with this undertaking. The Special Parliamentary Committee set up to consider the Bill, however, was averse to the reduction of taxation in the form that we desired. In view of the fact that no direct profit could be made by the bank on this phase of its activities, the Committee recommended that the shares for which the Government had the right <to apply should darry a fixed dividend of 6 per cent. as''again the fixed divided of 7_ per cent.' on.'shares allotted to the ordinary shareholders. As this reduction 'of 1_ per cent, on one-thiyd of the capital, together with , the business of the department beiy_ taxed 'on the same basis as an ordinary? joint stock company equalled the special rebate in income tax asked for, an agreement on these lines was arrived at. Power was taken iv the Act that, with the permission of the Minister of Finance, .further issues .of shares and debentures beyond those immediately authorised could be made on the same lines, but no application can be made to the Minister unless the consent of the ordinary shareholders of tho bank is first obtained. In the future, therefore, the mattfer of extending the operations of this -new department will be made on the initiation of ordinary shareholders. "As the making of long-dated loans on an amortisation basis by a joint stock bank is, to an extent, experimental, tho ordinary shareholders, should they deem it advisable, have the right to wind up the long-term mortgage department cancel the shares, and return all'-apital at par. "It is expected that the expense involved in connection with the activities of this new department will not be great as all matters connected with it will be carried on by the staff already in existence at the various branches, and although no direct profit can be expected, it is anticipated that a certain amount of indirect advantage may accrue" to the bank. MThe,;department will be watertight, trading-on its own special resources, and no funds of the bank will be used in its conduct otherwise than that advances Jip to £500,000 from the ordinary funds may be made pending the raising of capital or debentures. With this exception, it is intended that the ordinary-business of the bank and that of the long-dated loans shall be kept entirely separate. "The directors are convinced of the soundness of the scheme and of the benefits borrowers will derive from it."