NEW DEVELOPMENT

Nelson Evening Mail, Volume LXI, 18 June 1926, Page 5

NEW DEVELOPMENT

BANK OF NEW ZEALAND LONG-DATED LOANS AT 6 PERCENT AUTHORITY TO BE SOUGHT TO RAISE NEW CAPITAL ... • (Special to The Mail) ATOLLLNGTON, This Day. Presiding at the annual meeting of the Bank of. New Zealand at Wellington this afternoon, the, Chairman,of Directors, Sir George Elliot, made an important announcement regarding proposed new activities of the Bank. He said that the question of creating a special department of for the jpurpose 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 ibe paid off by half-yearly in-, stalments, extending oyer a great number of yeai"s, has ' become popular amongst borrowers both here and else-; where.' Such loans -are peculiarly suited to the heeds of primary producers as well asr 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' or ganisation in the country. On-31st March' last its existing loans amounted to;£30,000,000 made to over, 60,000 bor- " rowers. •■■; ••'■,. .. ~'■ '■'.■■'■.v.'.'' ■'A.-'.'' '■'■■ ■ There appear to be many reasons why the activities of this,Department should not: be much further extended. Apart frpm'the political.aspect and from the fact that little revenue by way of taxation is • obtainable f«>ra the department 'as at present constituted, it seems that loana Tor its extension are not received with much London, while extensive i borrowing in ' New Zealand . would haye a tightening effect on the -.'■ local money market, with aconsequent ~ tendency. to increase interest rates. . >ln the question-as" to fjhe advisablenesg, or'otherwise, of the Bank taking- up this class of business, there . are mturaUy important points to be, : considered. Perhaps the most important is that it would be improper for a com,:'mercial"bank I 'to lock up ariy portion ; of. its deposits, or even its ordinary ;. 'capital, in loans; extending over long periods - . ':■'.'.:. '.;■ /As,banks have the'machinery in existence that would 'enable them to conduct lending business of this descriptoin. . , more 'cheaply, than ) any other, organisation in A the we.have subject to; ■Parliimehtary' authority jbe- ' ing granted, to set. up a department for the purpose of making long-dated loans on an amortisation; basis. '.'„'. Authority will be sought to enable the bank ;to; -raise .•£1,406,250 of new capital.tp be styled ''Long Term (Mort-, / gage Capital," and'also to'raise by debenture issues as 'and when required, ."nthfee times ihe amount -of. this special The debentures would be se- .':" -cured on the -'long term'' loans' The .amount of loans outstanding would be limited to the amount of the hew paidup capital and debentures and no 'deposits nor any of the present capital ">----'6f the bank would be employed,in this new line of business, except by way Of a liniitect, advance .pending the issue, of 'the new carnal and.;debentures.. . v ~ . .The'amount"of !,'long'term mortgage" -capital proposed v ; raised « ; {s...one-! - quarter": of . the ; ;amount of the present ■ capital ?J so;that when all,the new capi?. S tal; is"raised "it will represent;one new! sharo.ipr- every four existing shares.-It. may be- sbme^years;before it becomes, necessary. whole of the capital,'; as;.;!;. haye said, forlongterms on> the amortisation sys-,- .'. '(■ torn are., growing in. favour'throughout the Dominion, ' Under,this scheme it is proposed that ... loans should! be granted by the bank for ..-';- periods 'of not; morethah 36^:years. The .Government will, of course, have > the right.,.to take up. one-third of the new ispue of and the-ordinary shatehplders the other two-thirds. :■ . - . ];Thejdividend on the new capital will , , be'fixed at cent, per-annum. [ ■i. ,The rate of interest to be charged by .;,"• the bank' <c«f t the.; Vlong: term," loans, .wjil, ; °.be*:o''pCT/centJ 'and, is'not to,'be varied except',uhder authority..of an Order-in-CounciL ■';"'" ~, Charging this rate of interest, it is evident w,e shall not-,nett a-••return of ,6 per cent; from the'operations, of the Long Term Loan Department, ar working expenses, losses and income-tax hay.e!.itd be provided for; but we shall , 'ask Government;'in cohsideratioh of our . fixing! the lending rate on these long term-loans at 6 per cent, that-the in- :\ come from this department shall be "assessed for taxation on a basis appropriate ta : the circumstances of the case. ; We may reasonably hope to secure for the ordinary business of our bank some collateral advantages from these ilong term loans; ibut, whether, we dp so,or not, the proffl-earning power.;-; of the bank as a whole will, be sufficient. to pay dividends, on the existing.- capital at present.rates, as well as per cent. on the new capital. .";'> -.-■•..-.-• WKile this new departure is intended primarily for the benefit of the pastoral and agricultural section, it is also intended to serve other classes of |.he community." * ' So.-far as short term credit, and what is known as intermediate cfedit are concerned, believe that adequate provision already exists in the activities 1 of the banks;'the various farmers' cooperative societies and other lending organisations. | While the present opportunity is taken to •acquaint .shareholders with what we have in view, they must bear in mind that this matter, has not yet been submitted to Parliament. Ppwer will be taken in the Bill to j enable the Minister of Finance.to increase by Order-iri-€ouricil tTie capital of the Loan Department anil "debenture issues in the same proportion as already outlined if and when circumstances warrant. Power will'also be taken to .enable the bank to pay off at par the whole or any part of this special new capital should the scheme not be a.» successful as we hope and expect it to, bo.

in entering into lliis new activity, we believe and trust that we are serving the very best interests of the cojhnIn regard to tlie rate of interest we propose to charge on these loans, T may point out that the Rural Rank Department of the Government Savings Rank of New South' Wales charges 6|'per cent. on long term loans and it is nod subject to any taxation whatever. (United Press Association.) Speaking regarding the proposed longterm loans Mr Weston said that by reason of its numerous branches in touch v with farmers, the Bank could undertake work at very much less cost than any new institution. The return to the Bank would be considerably less than 6 per cent, and it would have to depend, to a certain extent, on the reserve fund. In entering into this branch of business, the Bank was considering more the welfare of the Dominion than the narrow interests of the shareholders. The Bank's present position was mainly due to exceptional profits made

during the war in common with almost every manufacturer, but in consequence of a wise policy adopted by the directors, the Bank had been a tower of strength to men in trouble in 1921, and the present balance sheet was to a large extent due to that policy. In view of the additional tax on the directors, he wished to propose that legislation include provision for an increase of directors' fees by £ISOO. Mr Millward seconded the motion, winch was carried.