OVERDRAFT RATES.
? BANKS AND PRODUCERS
SOME CRITICISMS ANSWERED
"TAKING RISKS IN TIMES OF STRESS."
"That this meeting of dairy com panics bring under notice of the Government the excessive rate of interest charged by the banks operating in New Zealand, such high. rates being reflected in rates of interest charged by other financial institutions. This, in face of the Home money market and the severe financial stress of dairying and other primary industries of the Dominion. We submit that the associated banks should make a substantial reduction in the Tate of interest now charged. We solicit the kindliest assistance of your Government in the matter."
The above-resolution was carried at a meeting of directors of dairy co-opera-tive companies, held at Hawera on Monday last. It was not the. main objeict of the meeting, which was called to consider a compulsory pool of all Glairy produce intended for export. It is probable that the Hawera resolution relating to interest on bank overdrafts will be expressive of the opinions <©f many co-operative dairy factory directors and echoed at subsequent meetings to be called to consider the ■dairy produce pooling scheme. S2|i&!j_, that be so, then some comments maile by bankers to a representative of the "Wellington Post should prove instructive. It was explained by the head of •one\of s t__e banks that the institutions trading in New Zealand are not charging more than mortgage rates on their advances to customers; furthermore, tihe interest charged on advances on overdrafts is levied on the daily balance, arid, not on the lump sum, as is the case with mortgages. Almost everywhere else, excepting Australia - and New Zealand, the borrower from a bank has to take money for a fixed term and pay interest on it during the whole of that period, whatever it may
; It was also pointed out that the income tax paid by the banks trading in New Zealand is at a far higher rate than the income tax paid on income derived from mortgages. In round figures, the income tax paid by the banks is equal to 1£ per cent of their advances.
SOME CONCREETE INSTANCES. As to the case of the dairy farmer and; some.other producers, it was reTmarked by a banker that high interest rates oti bank advances could not be regarded as very serious factors in dairy companies? affairs. He quqoted at random the figures of three North Island dairy companies who have accounts with the bank with which he was connected. . ."One x>f these," he said, "has a limit of £14,000, and is frequently allowed to exceed that amount. A half-year's interest at 7 percent, upon £14,000 will amount to £490." As a matter of fact during the half year to which he was referring, the company paid £183 in interest. The second company referred to had a limit of £12,000, instead of £420 it paid £220. A-third, with a Jimit of £5600, instead of paying £196 actually paid £75.
Referring particularly to' Taranaki, this authority remarked: "The position in that district is due, not to high rate bank interest, but to the excessive prices paid for land, much of which is mortgaged far above it fulls value; also to.failure to provide, during the many prosperous years that that district has enjoyed, for the lean years to come, .that always come; that hare^"in"fact,' arrived; finally, personal extravagance is a factor that cannot be left out in considering the present financial situation m Taranaki and other dairying districts." ■■ < ' '
TOO MUCH PAID FOR LAND
So far as The' Post could ascertain, a reduction by the banks in the rate of interest on overdrafts would not reprieve the position in Taranaki or ekewhere. What was considered necessary -was that the price of land should be reduced to its productive value. "Persons and companies," it was said, *■ should .not involve themselves in debt beyond what- their means will permit; and besides they should exercise the strictest, the serevest economy in every -direction. That is the true solution of the present problem confronting dairy .companies and producers generally." f»"The banks have been assisting the public, and will continue to do so to, the utmost limt of their resources," was added. "In the general interests of the country they are actually taking risks in these times of stress that they certainly would not entertain for a moment under ~ normal conditions of finance and trade. It is inevitable that some losses will be made. These, in the interests of the community at large, must be provided against in the rate of interest to be charged on advances. What the producer needs to-day is the maximum of financial assistance to enable him to weather the storm. In the present conditions, then, the current rates of interest on advances are not j unreasonable. When one sees things as they really are to-day in New Zealand. 7 per cent, is not only reasonable, "but the rate itself becomes of compara--tively little moment.'
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https://paperspast.natlib.govt.nz/newspapers/HNS19220502.2.58
Bibliographic details
Hawera & Normanby Star, Volume XLII, Issue XLII, 2 May 1922, Page 6
Word Count
824OVERDRAFT RATES. Hawera & Normanby Star, Volume XLII, Issue XLII, 2 May 1922, Page 6
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