LONG-DATED LOANS

Northern Advocate, 18 June 1926, Page 7

LONG-DATED LOANS

THE AMORTISATION PRINCIPLE. BANK OF NEW ZEALAND’S POLICY. (Special to “Northern Advocate.’’) WELLINGTON, This Day. The Chairman ,of Directors of the Bank of New Zealand (Sir George Eliot) spoke .as follows during his annual report to shareholders of the bank today:— The question of creating a special department of the Bank for the purpose of making loans on the amortisation principle, has, during the past few months, had the careful consideration of the Directors. We were induced to pay serious attention to this question, because it is becoming increasingly evident that the idea of loans that allow principal and interest to be paid off by halfyearly instalments extending over a great number of years, has become popular amongst borrowers both here and elsewhere. Such loans are peculiarly suited to the needs of primary producers as well as other classes of the community. At present this class of business is undertaken mainly by the Government Advances to Settlers Department, which is the largest single money-lending organisation in the country. On 31st March last its, existing loans amounted to £30,000,-1 000 made to over 60,000 borrowers. There appear to h e many reasons. why the activities of this Department should not be much further extended; Apart from the political aspect and from the fact that little revenue by way of taxation is obtainable from the department as at present constituted, it seems that loans] for its extension are not received, with much favour in London, while j extensive borrowing in New Zealand! would have a tightening effect on the local money market, with a consequent tendency to increase interest nates.

In considering the question as to

the advisableness, or otherwise, of the Bank taking up this class of business, there are naturally important points to be considered. Perhaps the most important is that it would bo improper for a commercial bank to lock up any portion of its deposits, or even its ordinary capital, in loans extending over long periods. As banks have the machinery in fcxistence that would enable them to conduct a Tending business of this description more cheaply than any other organisation in the Dominion, we have decided,, subject to Parliamentary authority being granted, to set up a department for tho purpose of making long-dated loans on aa amortisation basis.