THE H.B. TRIBUNE. WEDNESDAY, NOVEMBER 14, 1923 NEW ZEALAND BANKING

Hawke's Bay Tribune, Volume XIII, Issue 282, 14 November 1923, Page 4

THE H.B. TRIBUNE. WEDNESDAY, NOVEMBER 14, 1923 NEW ZEALAND BANKING

There has been during the last few days a good deal of well' founded press protest, based on data supplied by last week’s issue of the “Mercantile Gazette,” against a very unjust criticism by a casual visitor from the Old Country of the trading banks operating in this Dominion. This gentleman, Sir Thomas Allen, a director of two British concerns, the New Zealand Produce Marketing Association and the Wholesale Co-operative Association, has no doubt been out here first and foremost in the interests of these undertakings, yet may perhaps be given credit for having, in a subsidiary way, the interests of the Dominion producers at heart so far as they can be made to square with those he specially represents. It was manifestly, however, either through ignorance or prejudice, both highly disqualifying conditions, that ( he presumed to attack as he did, before an audience of Southland dairymen, the workings of the banking institutions of the country as they affect primary producers. His accusation against them was practically one of usurious exploitation, or even oppression, of those who come under obligation to them for financial accommodation. Apparenly without knowing anything of New Zealand banking .customs he assumed to institute comparisons between British and New’ Zealand interest

rates which wore evidently based on the complete misunderstanding that the practice was alike in both countries. As most of us here know this is a long way from being the case.

In Great Britain if a customer, be it individual, firm, or company, wants assistance from a bank, the arrangement made is not, as with us, for an overdraft limit up to which the customer may draw as his needs from time to time dictate, but for a set loan of the maximum amount he is likely to require. On the full amount of that loan, until it is repaid, he pays the agreed rate of interest, even although during a great part of its currency he may have active use for only a small proportion of it. With us, of course, the interest is charged merely upon the fluctuating daily debit balance of the current account. Under this heading, therefore, the great advantage lies with the New Zealand borrower. The other factor to be considered is, of course, the stipulated rate of interest, and this, under the circumstances, is reasonably enough on the average substantially higher with us than in the Old Country. But in this respect it has always to be borne in mind that, so long as the arrangement stands, the New Zealand bank has to be prepared with funds to honour the client’s drawings up to the limit. The “Mercantile Gazette” takes a number of authenticated instances of dairy company accounts and shows that, on the footing of the respective amounts made available for the customers, the effective interest charged was actually lower than it would have been for like accommodation at home, although, of course, there the standard lending rates are very appreciably below our own.

As a matter of fact, it may confidently be said that the banks of this country have been very potent factors, as they have also been in Australia, in the development of our primary industries, and that without them our progress would have been slow indeed. It has only been at times of widespread financial stress outside our own boundaries, and so entirely beyond their control or influence, that anything' in the nature of general pressure has had to lie exercised by the banks. Even undec these conditions they have done the most possible, consistent with the maintenance of their own stability,to save their customers from financial collapse. No bettorinstance of this could be found than in the efforts they have put forward during the last three or four years to keep the industrial and commercial enterprises, both primary and secondary, of the country afloat. In fact, in these efforts the banks have, most of them, transgressed badly against the canons of safety by which they are customarily restricted, taking risks that would not for a moment have been entertained by kindred institutions in Great Britain. This, too, is an essential element in the case which our so evidently ill-instructed visitor has altogether overlooked when making his comparison. It has only been by the hazards thus necessarily taken in a young country that the country itself has been made. It speaks volumes for both the country’s resources and the management of the banks that during our history only one such concern has gone hopelessly under, although another had to be given State support before making a splendid recovery, but only after the:, shareholders had practically lost all they put in.

These are all things that are apt to be forgotten not only by outside but by inside critics of ouy banks. Bui, while the banks may thus be very convincingly exonerated from the specific charges that have been brought against them, it may very well be that the time has come for them to have a general revision of their policy and practice of the past, to see whether there are not aspects of them that, in mutual interests of lender and borrower, are capable of improvement havinig regard to altered modern conditions.

In the matters of rates of commercial .exchange and of interest on current account credits, for instance, there is a strong feeling that the banks might with advantage' do something for their customers without eventual injury to themselves. They may also rest assured that eus-, 1 omers. cannot but note that the ratio of profit seems to be set on the lines of paying a fair return not on paid-up capital, but on the market price of shares, thus of necessity following a continually ascending scale. Nor is it overlooked that on these higher profits the customers have, in effect, to pay the heavy rates of taxation to which the banks are subject.