REDUCED INTEREST

Evening Post, Volume CXI, Issue 44, 21 February 1931, Page 10

REDUCED INTEREST

AUSTRALIAN BANKS' POSITION

The Premier of Queensland (Mr. Moore), has suggested that the Australian banks should reduce their rate oE interest on overdrafts to pastoralists to 6 per cent. The banks, however, hold that while the money market rate remains at its present high level this is impossible. The position of wool firms was different as they handled the product of the pastoralist, for which there was a more or les3 fluctuating market. The banks could lend only the money that they borrowed, and, as there was a fixed rate on this money, they could not reduce the lending rate without endangerng their stability. The rate paid by the banks on long-term fixed deposits, which constituted the principal fund out of which overdrafts were granted, was 5Vi per cent. The average overdraft rate was a shade less than 7 per cent. Some customers were charged more and some less, in accordance with the class of business. The difference between the 5% per cent, and the.7 per cent, had to cover taxation, overhead charges, and possible defaults, and the profit, therefore, vns very small. Only the volume of the b"jiness transacted enable the banks to carry on with such a small margin. A great number of interest payments, particularly those due by people on the land, were in arrear. Some customers had not been able to pay any interest on their last year's accounts, and the. banks, probably, would lose both interest aud principal in such cases.

Where a settler was making a genuine attempt to extricate himself, from his financial difficulties every consideration was extended to him by the banks. Generally speaking it was regarded as bad business to foreclose on the man on the land, if he were decent and honourable, as he would probably know better how to conduct his farm than a newcomer. In many such cases the banks'had cancelled interest to give the settlers a chance. Thn.t meant a complete loss. There .was no automatic way of reducing overdraft rates unless interest rates on deposits—those in the savings banks as well as those in the trading banks —were first reduced. This was impossible in face of heavy Government borvowings at high rates of interest.