RURAL FINANCE

Evening Post, Volume CV, Issue 140, 15 June 1928, Page 6

RURAL FINANCE

♦ BANKS AND FARMERS CREDIT SCHEMES REVIEWED SHOULD GREATER RISKS BE TAKEN"? Fortunately tlie great majority of New Zealand farmers are not impecunious. As a matter of fact, it is doubtful if oven 10 per cent, of them are in that condition at tho present moment. Many, especially those who acquired their farms before the war, are now doing, and have been doing all along, particu- ' larly w,ell. —Sir George Elliot, at Bank of New Zealand meeting today. . liural Advances and the Rural Intermediate Credit came in for some remarks by the chairman of the Bank of New Zealand (Sir George Elliot) when addressing shareholders to-day. He spoke first of the Eural Advances Act, under which the Advances to Settlers Department recently issued a £400,000 nineteen-year 5 per cent, loan at- 941. Although the issue was fully subscribed, tho support expected from farmers, many of whom are in a position to subscribe, was negligible. Tho Bank of New Zealand applied for and took up a large proportion of the issue. The loan was secured by tho assets of the rural advances branch of the Department, which consists' of mortgages of farm lands; but over and above that specific security, both principal and interest of the bonds are, under the statuto, payable out of the Consolidated Fund of the Dominion without further appropriation of Parliament. Therefore, it would appear that the State is responsible for tho payment of interest and principal. Last session Parliament passed a measure empowering the establishment of a BuraL Intermediate Credit Board for the purpose of making loans to farmers on security of farm produce and live stock. "This measure," Sir George Elliot admitted, "is a well-mean-ing attempt to meet a difficult position, viz., the financial necessities of farmers who have not sufficient satisfactory security to enable them to borrow through the ordinary channels. Tho Government is lending the board £400,----000 free of interest for ton years, and it is also extending other cash privileges. The success.of tlio scheme .will depend largely on. the terms "on winch tho board can raiso its bond issues.. The bonds will-be a first charge upon, tho moneys from time to time lent by the Government to the board as mentioned, and the .•issets upon which loans aro made. These will comprise, the only securities available to bond-holders. RISKS AND INTEREST RATES. "Any scheme Ui. 1 will help the farming industry is iuost worthy of support; it is, therefore,'to be hoped that tho public, and particularly farmers who are in a position to do so, will assist the movement by. taking up these bonds, as they are issued. It has been reported, however, that the board's intention is to lend its funds only upon such securities as tho ordinary prudent business man would accept; but if this intontion has been correctly reported and is carried out in practice, it will bo found that loans will be granted only to persons and associations who could quite easily obtain assistance elsewhere at little above the charge made by tho Intermediate Credit Board.1 '.'A difference of even one per cent, would not be sufficient to pay the income tax, apart altogether from other .rates or taxfis that private lenders arc' subject to. My colleagues and I are strongly of opinion that it would bo in the best interests of the Dominion if the board altered such intention, took wider risks, and charged a higher rate of interest on account of those risks. Borrowers w^iose security is not of high order have the greatest difficulty in 'raising money at any price, and. these are the people that stand most in n£ed of assistance at the present time. -.Whether the rato pf interest charged is' 6 or 8 per cent.''"is not of vital importance—what is' of importance is that these borrowers should be assisted to the greatest extent possible and given a chance to win through, even though their security may not be of a choice nature, provided, of course, their character arid ability are satisfactory. THE STRUGGLING SETTLER. , "In the financial stress of recent times borrowers who had first-class'se-curity to offer had not the slightest difficulty in obtaining loans,* and tho position is better to-day. If the board pays particular attention to this class of borrower, the only thing that can happen will be a reduction of interest rates at tho expense of the community, for little, if any, taxation will be paid by the board, and the struggling settler, to help whom the system was surely designed, will be loft' in his original plight. Lenders who are prepared to take a reasonable risk, even if they charge a somewhat high 'rate of interest for the risk involved, do more for the advancement of New Zealand than those who confine themselves to gilt-edge business at a low rate of interest. If there is any necessity for a Government Rural Intermediate Credit Department, and I think'there is, that necessity lies in the direction of help for the struggling settlor. Such help can be given only by Government, and not by the stock and station agents, financial corporations, and private lenders who, having to pay high rates and taxes, cannot afford to take the riskinvolved in this.class of business with- I out charging a comparatively high rate of interest. "In connection'with the Rural Intermediate Credit Boards, advisory committees have been appointed in various districts, the members^ of which should be, doubtless invariably are, in a position to judge as to the honesty of purpose, abifity, and general character of the applicants for loans. Taking these essentials, into consideration, they might, with a reasonable degree of safety, advise the board to make an advance e^en though the margin of material security was not up to the level demanded by the private lender. PERCENTAGE OP LOSSES. "The percentage of losses in this class of business would be certain to

be above, the average; but if a rate of interest were charged sufficient to cover tho extra risk involved, it is conceivable that a great and valuable work would bo accomplished not only for many a struggling settler, but for New Zealand generally. "I may say the Bank of New Zealand will gladly render every assistance to tho Intermediate Credit Board that lies in its power, financial or otherwise. . . "It has been suggested that Government should consider the advisability of exempting from income tax all revenue derived from mortgages on farm lands and advances against tho security of farm stock and If it be considered advisable in the interest of tho industry that the Rural Credit and Rural Intermediate Credit Boards should have special advantages | in regard to taxation on income from such advances, surely all lenders on this class of security should be put on the same footing. If such a course were followed it would mean, of course, that the loss of revenue from one section of taxpayers would require to be made up by the others. Nevertheless, tho suggestion is worthy of careful consideration. FARMERS IN SAD PLIGHT. "It is well known that all over tho world there aro farmers in a sad plight owing to the fall of values si«tee 1920----21, and much consideration is. being given to this subject at the present moment. In New Zealand, for some years prior to that period, rural land had been purchased, often by men of inadequate means, at a price far beyond its productive value. Many of these purchasers have had to abandon their holdings; others are still carrying on a more or less struggle, and how to help these to win through without undue sacrifice on the part of the mortgagees- is a diffieiilt problem to solve. "The New Zealand Government, as lessor of Crown lands, has done much to meet the misfortune of its tenants by concessions of rent, etc., but whether enough has yet been done in this way is a matter of speculation. A number of cases have come under our notice in which the allowances made seem inadequate, but these, no doubt, will receive further consideration from the Department. This bank, also, in common, with many other lenders on farm land, has made considerable concessions on advances by reductions of both principal and interest. PREMATURE PIONEERING. "There is no doubt that much Crown land thrown open for settlement during the last twenty years should have been left in its virgin, state, and that the rental of other areas, particularly bush land, has been fixed at too.high a level. No settler is so much' entitled to consideration as lie who ■ sets out to bring virgin land into productiveness, and few taxpayers will complain of a maximum of consideration being extended to him by the State, either by reduction of rent or by loans through the Rural Intermediate Credit Board. "Regarding the difficulties experienced by corporations set up for the especial purpose of making advances against the security of farm lands, in other parts of the world, it may interest you to know that the Federal Land Bank, Spokane, United States, reported in September last that it had not paid dividends since 1923, <aud had acquired by foreclosure 2599 farms. These foreclosures are attributed to lending on land in ,newly settled districts, to a fall in values, and to alterations in general agricultural conditions. All of these eventualities, the Spokane Bank claims, it'was powerless to prevent. The other eleven Federal Land Banks in tho United States, however, came to its assistance by making a joint advance, to it of three million six hundred thousand dollarß. "Fortunately the great majority of Now Zealand farmers are not impecunious. As a matter of fact, it is doubtful if even 10 per cent, of them are in that condition nt the present moment. Many, especially those who acquired their farms before the war, are now doing, and have been doing all along, particularly well."