The Evening Star FRIDAY, JUNE 17, 1927. BANK POLICY.

Evening Star, Issue 19585, 17 June 1927, Page 6

The Evening Star FRIDAY, JUNE 17, 1927. BANK POLICY.

The most topical subject dealt •with in the speech from the chair at to-day’s annual meeting of shareholders in the Bank of New Zealand is tho rates of interest. Mr Gibbs makes out a strong case, even an unanswerable case, for action by the banks in one of two directions. An adverse movement, amounting to some millions, as between advances and deposits, necessitated either tho attraction of additional deposits or a calling up of a considerable volume of advances. Tho trading community will recall without enthusiasm the condition of affairs for some years subsequent to 1921. Within two years from that date the Bank of New Zealand reduced its advances from £27,725,874 to £17,746,713. Tho ratio of advances to deposits was thereby brought from 80.42 to the eminently safer figure of 59.14 per cent. At tho end of March, 1927, the ratio had again risen to 75.72 per cent, although the advances totalled no more than £22,462,952, The reason for the high ratio was the shrinkage in deposits, which, at £29,664,024, stood at a lower amount than at any time in the last ten years, except for one year during the “slump ” period, when they touched as low as £28,676,603. It has been realised for some time that tho banks have been losing deposits which at ono time used to flow to them. Investors have been attracted by a wide choice of municipal and other debentures, while since 1920 the Post Office Savings Bank (a taxfree institution) has been paying interest on individual deposits up to £5,000 instead of on a maximum of £I,OOO. Tho loss of business to competitors without effort to recover it would have been a pusillanimous policy. It will perhaps come as a surprise to most people to learn from figures quoted by Mr Gibbs that deposits in tho Post Office Savings Bank actually exceed those of all the joint stock banks doing business in New Zealand. If the new rates for fixed deposits offered by the latter divert deposits from the savings banks one result will bo that money of which the Government has hitherto had the use wilt be made available for ordinary trading purposes. Such a prospect is hardly likely to be relished by the Minister of Finance, but to a considerable extent the Treasury has conflicting interests in the form of its part proprietorship in tho Bank of New Zealand. In the past year the Government derived £530,046 from the bank’s operations—£232,l2B as dividends and £297,918 from taxation.

Tho section of the acting-chairman’s speech dealing with the new department created by virtue of last year’s legislation is extremely brief. What was said both by Mr Gibbs and by Mr Reece confirms tho opinion expressed when the long-term mortgage scheme was first unfolded—i.e., that it would afford little relief to the most hard-pressed section of the farming community. It is quite evident that banks and other reputable lending institutions are determined not to encourage any attempt to maintain land values at a fictitious value. Applications for loans on securities that are not regarded as quite safe are being declined. One of the dominion’s leading authorities on land, its products, and its finance expressed the opinion at a meeting in Dunedin this week that the price of land in New Zealand should bo less now than it was in 1913, and, this not being the case, lower values may be expected within tho next two or three years. While products of the soil are realising more now than in 1913, the net return to the farmer is loss because of the great increase in costs of production. This is sufficient answer to those people referred to by Mr Roece who v iiave been criticising tho banks in public on thoir unhelpful attitude to farmers who desire to be borrowers, and who urge the Government to embark in a class of business which those with most experience decline as unsafe. There is only one way in which those to whom the writing down of their land values is repugnant can avoid the necessity of having to do it, and that is to so increase the produc- | tivity of their land as to enable it to 1 show higher net profits per acre. The most likely rejoinder to this is that it cannot be done without command of increased capital or less expensive farm labor. The capital cannot bo obtained on the tferms to which landholders seem to consider themselves entitled, and the difficulties in regard to labor are too well known to need recapitulation. Thus there appears to be no alternative to acceptance of the placing of more conservative values on land which all lending institutions appear to bo adopting.