BANK RATES.

Grey River Argus, 18 June 1927, Page 6

BANK RATES.

THE INCREASE. BANK OF NEW ZEALAND VERSION. WELLINGTON, June 17. In liis annual report at to-day’s meeting of the Bank of New Zealand shareholders, the Acting Chairman (Mr R. W. Gibbs) referred to interest rates, staling:—Tim reduction of tlu* Bank of England rate has ha<T a wholesome effect on the London Market, and Colonial securities promptly appreciated. Unfortunately, with our adverse trade balance to contend with, this reduction has not been reflected in New Zealand, and an increase in local rates, long de-

ferred, became inevitable. The banking figures for the past quarter, as compared withi those of a year ago, show a shrinkage in deposits of no less than £1,773,(‘>67, whilst advances increased by £2,515,668, representing an adverse movement of £4,289,335. To meet the situation it has been found necessary to offer more attractive terms for longdated fixed deposits, with the usual corresponding increase of 4 per cent, on advances. This increase in the minimum rate of interest on advances, consequent on a similar increase in the rate paid by the banks on fixed deposits, has aroused much adverse criticism The increased rate does not apply to all advances; most accounts which have hitherto been charged more than 64 per Cent, will not be affected. 'Pho increase was not decided on with out the fullest consideration by the banks and with a full sense of respon sibility. What was the position which the banks were called upon to face? The banking returns for the quarter ended 31st March last disclosed a considerable excess of advances over deposits as previously shown, and indications point to a steady increase in these figures. No competent critic will say that such a position could wisely be allowed to continue.

The banks had to choose between an endeavour to attract additional deposits by offering a higher rate of interest or demand repayment of a considerable volume of advances. There can be no question as to the disastrous results to many traders and producers had the latter course been deemed the better. The rates of interest offered by the Post Office Savings Bank have for years past had the effect of attracting to that institution considerable funds. Between 1914 and 1926 deposits with the joint stock banks increased by £15,080, 000, whilst the deposits of the Post Office Savings Bank increased by £25,745,000. In 1920 an Act was passed enabling /the Post Office Bank to increase the amount of any deposit on which it could allow interest from £lOOO to £5OOO. It will be gathered from these figures that the deposits of the joint stock banks increased 52 per cent, between 1915 and 1926, whilst those of the Post Office Savings Bank increased 116 per cent.

"Whilst the joint stock banks are obliged to keep large unremunerative cash reserves, the Post Office Savings Bank can invest the whole of its deposits. The joint stock banks are further handicapped by having to pay heavy income tax, whereas the Post Office Savings Bank pays none. It is safe to say that the amount of individual deposits in excess of £lOOO held by the Post Office Savings Bank in the Dominion runs into millions. We question very much whether, at the end of our current financial year, after allowing for bad and doubtful debts, we shall average as much as 6J per cent, on our advance business in New Zealand. The advance business is, however, but one of many branches of our banking ramifications. It is argued that a State Bank would meet all our monetary trials. Well, there is a State Bank in the Commonwealth, which commenced operations in 1913. At that time the advances of the joint stock banks in Australia totalled £124,229,109. At 31st December last they had increased to £247,548, 616, an increase of over 123 millions.

During the same period the advances of the Commonwealth Bank grew only to £13,010,671.

If a State Bank is the panacea for the financial ills of the country, why such solid preference given to the joint stock banks by the public generally, as these figures indicate, notwithstanding that the joint stock banks in Australia for some years have charged a higher rate of interest to the public than the Commonwealth Bank ?

The late Mr Massey, Prime Minister and Minister of Finance, publicly stated that ho valued the State’s goodwill in the Bank of New Zealand at 2| millions —a very handsome remuneration for the Government’s guarantee—given not in the interest of the shareholders, but to prevent Dominion disaster—a guarantee which cost the country not one penny. During the war period the rates elsewhere in the world fluctuated widely, and in many cases on a high level, while the advance rates in New Zealand were admitted to be the lowest in the world, and showed little variation from the pre-war days. In discussing the rise in advance rates, reference has been constantly made to the simultaneous fall in the Bank of England rate, There is little co-rclation between the two rates. The Bank of England rate is the best rate for the discount of giltedged commercial paper, the discount being deducted from the proceeds when the bills are discounted, and forms a class of business unknown in the Dominion. The New Zealand advance rate is for overdrafts, and is in an entirely different category, the charge being made on the fluctuating daily balance and debited twice in the year, the security being of a less liquid and of an entirely different nature from that held by the Bank of England.