BANK OVERDRAFTS.
ARE RATES TOO HIGH?
THE INVERTED PYRAMID
FINANCIAL POINT OF VIEW
Are bank overdraft rates too high? The dairy factory directors who- met at Hawera last week held them to be "excessive,'' and from information reseived by the Post, it seems, that that view is shared by other producers with the dairy farmers referred to. However, the interviews with bankers on the subject published yesterday are en-, dorsed and amplified by another financial authority interviewed by the Post. It was first- pointed out in that interview that with money, as with any other commodity, the inexorable law of supply and demand must operate—a commonplace, it was admitted, but generally overlooked by farmers and other critics of the banks. "It must be remembered," it was remarked, "that money, or crdeit, is like butter—a commodity. Let the demand exceed the supply, and the price of money or credit will rise. As a matter of fact, for some years money was cheaper in New Zealand than in any other country.' 1 "Is that generally understood?" was asked. "Perhaps it was, perhaps not," was the reply. "In any case the facts are that New Zealand banking averages showed that over the five years 1916-20 deposits (excluding Government deposits) exceeded advances by nearly ten millions, and during most of that period New Zealand was the cheapest money market in the world. When the American rate was 10 per cent.; when the Bank of England rate was 7 per cent.; the minimum rate in New Zealand was oi per cent. I have looked throughout this agitation for some acknowledgment of this fact, but it is not forthcoming, nor do I recall any instance of any i conference invoking the aid of the ,- Prime Minister to have' the New ZeaJ land rate raised to the level of that of the Bank of England/ The question was then asked: "The rate in New Zealand having risen, is 1 it due to the demand for credit exceeding supply?" | For answer: "Reference was made to the flood of imports of July, 1920, j and onwards. See the result: In ! March, 1920, deposits exceeded adj vances by over £18,000,000; in March, 1921. advances were in excess by over £5,000,000; increased in March, 1922, to over £8,000,000. In a brief twelve months banking resources diminished 'by no less than £23,000,000. Is not this fact overlooked by the critics of the banks? Synchronising with this j adverse movement the first increase from the 5£ per cent.' rate was made in July, 1920. ! "It has been derided, but remains , true, I believe, that successive reductions in the Bank of England rate aim : partly at stimulating trade and bringJ ing about a much desired increase in | exports. In New Zealand rates were raised to check borrowing; and where I restriction was either impossible or im- , politic assistance was extended until the banks strained their resourcse to the utmost. This fact has been frequently acknowledged since Jxily, 1920. Is it not being ignored to-day? For the year March, 1922, advances decreased nearly £6,000,000, but deposits —including Government — decreased £8,500,000, so that on the year banking resources were reduced over £2,500,000. Is not this being overlooked? At March, 1922, advances exceeded civposits by over £6,000,000. Is this significant fact given due weight in tbft agitation for a reduced lending rate? It was suggested in the interviewthat there was a feeling existent that more competition, such, for instance, as that of the Commonwealth Bank of Australia, would produce lower rates in New Zealand. In reply to this, it was pointed out that "the minimum lending rate of the banks in Australia—excluding the Commonwealth—is said to be 6J per cent. 1 ' so, that is £ per cent, lower than v- \'ew Zealand. But is it known that 'i - > taxation paid in New Zealand exec ' ; taxation paid in Australia by more than this | per cent,? The Commonwealth Bank minimum rate is said to be 6 per cent. Be it so. Still that bank neither pays land tax nor income tax, nor any other tax. "Now, take the published balance sheet of the Bank of New Zealand f^r March, 1921—and I trust that that institution will pardon the liberty of this reference. Advances appear as £30,500,000. One and a haff per cent, on that amount is £457,500. Look at the profit and loss statement, and itJ will be seen that the bank paid in rates and taxes £485,000, or more than 1J per cent, on its advances. Therefore, although handicapped by rates and taxes to the extent of H per cent., as against the Commonwealth Bank, its minimum lending' rate is only 1£ per cent. more. The same fact applies to all the banks; and maybe those who suggested the comparison will now recognise the fact that, allowing for taxation, the banks in New Zealand are actually lending cheaper than the Commonwealth Bank of Australia. "The facts are that if money can | be said to be dear in New Zealand that dearness is due, first, to taxation, and, secondly, to short supply, the latter illustrated by that inverted pyramid, an excess of advances over deposits.''
Permanent link to this item
https://paperspast.natlib.govt.nz/newspapers/HNS19220503.2.19
Bibliographic details
Hawera & Normanby Star, Volume XLII, Issue XLII, 3 May 1922, Page 4
Word Count
855BANK OVERDRAFTS. Hawera & Normanby Star, Volume XLII, Issue XLII, 3 May 1922, Page 4
Using This Item
See our copyright guide for information on how you may use this title.