BANK OVERDRAFTS

Evening Post, Volume CXVIII, Issue 14, 17 July 1934, Page 10

BANK OVERDRAFTS

LOWER RATE URGED

The recent; conference. of the Australian Graziers' / Association urged the : banks to . make- a further : reduction- of interest on overdrafts, and the general secretary of the association; in a letter to the banks, urged that they should bring influence'to bear to expedite the conversion to lower interest rates o£ those loans overseas which carry interest, at,s per cent, or more; oppose the issue of tax-free Government loans ."which divert largo sums away from the channels of private enterprise"; press for reduction of taxation to permit advances to be made; at lower rates; and make endeavours to reduce the depoaitrate. ■'' ' : : ' '

The letter: states1 that^the margin be^ tweeu overdraft; and deposit rates (3 per cent.) is very wide and should be contraicted in the interests o£ industry;. :.■■ Replies have been i-eceived so far from four banks. A reply from the Union Bank of Australia, Ltd., states: ''You may. rest assured, that the banks are fully alive to the whole position, which is Teceiving constant and the most earnest consideration. From the tenor of "your letter youi do not 6eem to appreciate that for some time overdraft rates have been, and ale : still being'; reduced as circumstances warrant." • . -• ■'-.;;

' A reply from the Scottish, and Australian Bank, Ltd., states that the question whether a further drastic cut should .be. made as a. contribution to recovery opens up a debatable subject.' "If the banks were making large profits while industry was in difficulties," the reply adds, "pressure to further reduce ratbs would be well nigh irresistible, but information about the profits being made is available to the public, and the rate, is about equal to the rate on two years' fixed deposits, calculated on capital and public reserve's. To this should be added the deductions from ■ earlier profits to write down bank premises, etc-ya sacrifice/made by shareholders in favour of building up a strong financial structure. "The banks would willingly further reduce rates' if they could adequately adjust their own costs, but in this.respect they are faced with exactly.the same obstacles —arbitration awards, taxation, etc. —as face the producer.

; "The belief-expressed in your last paragraph—that the banks enjoy a margin of 3 per cent, between deposit and lending rates—is illusory. In. the first place, we liave to maintain reserves against our deposits. Secondly, the average rate being paid.on deposits is greatly in excess of the current rate. ■ Thirdly, the interest paid is constant for the period of the deposit, while the interest on overdrafts is on the day-to-day balance. This latter fact is often lost sight of. It tends considerably to reduce the- rate paid on the funds which the customer is granted the right to use."

The governor.of London Assurance, Mr. Ronald Olaf Hambro, said in the life department 1933 constituted v record, and the net figure of £2.306.418 was one that they might well bo proud about. Referring to marine underwriting he struck: a note of warning. Hull rates lisul reached a figure at .which it .was practically impossible to show a profit.