BANK RATES TO STAND.

New Zealand Herald, Volume LXV, Issue 19974, 16 June 1928, Page 13

BANK RATES TO STAND.

-LITTLE LONGER" TO WAIT. DEPOSITS the chief factor STATE AND OTHER COMPETITION (USE IN INTEREST "NOT VITAL." [Bl' TELEGKATH. —OWN CORE ESPONDENT. ] WELLINGTON. Friday. r A statement, that tho rates of interest for deposits and advances will be kept C'for a little longer at the level ruling at present," was rnado by Sir George Elliot, chairman of tho Bank of New Zealand, in his address at tho annual nieetinc to day. Ho mentioned that the proportion of non-interest bearing to interest bearing deposits held by all the hanks in the Dominion has, for some vears, been steadily decreasing. For the March quarter, 1920, non-interest bearing deposits represented 69 per cent, of iho total deposits: whilo for tho same quarter in 1928 the proportion shrunk io 49 per cent. This is a factor seldom jaken into account by persons who adversely criticiso the increased rate of interest on overdrafts; increased cost to tho banks of deposits necessarily means a higher lending rate. Sir George reviewed tho subject at considerable length. He said tho increase in rates in May of last year was Rendered necessary by tho position into which tho banks were getting. It, is jrue that the advances of all tho banks jn New Zealand had increased considerably; it is also true that tho imports for the years ended March 31, 1926 and 3927, were much in excess of exports; hut neither of theso factors, important as they arc from a banker's point of ■view, was the chief reason why the overdraft rate was raised. The determining cause was tho intense competition, Governmental and private, for deposits. This competition had seriously affected the position of banks, which were reluctantly compelled to raise tho deposit rate, not only to hold tho deposits jhey already had, but also to stimulate and encourage a fresh supply, and so attain a. proper and adequate adjustment nf deposits in relation to advances. The natural sequence to a. rise in the deposit rate is a rise in the advance rate i—this, of course, in tho pursuit, of that perfect balance so much desired, but jicver attained, by bankers. Improvement of £9,000,000. Quoting tho advances and deposits shown by the March quarter returns for the two years. Sir George said that in the one year the banking position of the Dominion had improved by £9,160,000. ''During the past few months there has been much agitation for a reduction of the bank advance rates, and, in view of tho figures I have quoted, there would appear to be pome justification for this agitation," he continued. "I would point out, however, that to lower rates before tho position becomes stabilised might eventually be more upsetting than to keep them for a little longer at the level ruling at present. if, as a result of such lowering, the demand for advances increased unduly, or deposits were reduced, the same position as existed a year ago would quickly develop, and the fame remedy would again require to be applied. Rapid fluctuations in bank rates is not a desirable state of _ affairs for any country, and it is to avoid such 3 contingency that the present rates are being maintained somewhat longer than some people think necessary. Banks' View of Position, "The banks are necessarily in the best position to know what the actual present economic and financial position is, and what its future is likely to be; they would be false to their trust if, against their better judgment, they allowed themselves to be stampeded into doing something that would not, in their opinion and with their knowledge, bo in the lest interest of all concerned. May I emphasize the fact that high rates of interest are not of advantage to the tanks: borrowing customers may rest assured that their bank directors will be just as pleased as they themselves when the position warrants a reduction. "The. world is slowly—very slowly— Seturning to normal conditions, and, unless something unforeseen happens, it looks as if interest rates everywhere will have a downward tendency in tho near future. Heavy taxation rendered necessary bv the war is one of the principal factors in retarding a fall; reduction of taxation would help much toward a. Unore desirable state of things. Earnings and Expenses. 7he chairman quoted tho following t'atement of tho rates of interest earned by the Bank of New Zealand on its advances:—Year ended March 31, 1897, F. 56 per cent.; '1907, 5.79 per cent.: 1914, 6 per cent.; 1917. 6 per cent.: 1927, 6.67 per cent. The figure for 1928 lias not y-1 been worked but. Remarking that the difference, between the highest, and lowest point is less than 1 per cent., and recalling the heavy increase in income tax, salaries, and other overhead expenses between 1907 and _927, i~!t George said tho bank has not passed on to its borrowing customers a proportionate share of its increased operating charges. , "The desirability of cheap money must indeed be emphasised; but, in ISew Zealand, at least, it is not tho panacea for all financial ills that many writers and public speakers endeavour to make out," he added. "In London the raising of tho bank rate lias no doubt a dcfidedlv depressing influence, but a rise in interest rates has no such devastating effect on a country like Npav Zealand. It may' be inconvenient, but it is no *ital. After an investigation into the individual losses made by the bank during the year, I am satisfied that by no Mretch of imagination could these losses in any single instance be attributed to flie pavmeufc by tho borrower of nig i interest charges. I will go further and i.3v that, had'such borrowers paid 4 Jje'r cent- for their financial accommodation instead of 7, the result, in > every jtvr-p, would have been tho same. The State of Bank Deposits. Reference to the matter was also made Vy Jlr. William Watson, in seconding the motion for tho adoption of the report. He said the banks were advised frota several quarters that, as the interest rates wero raised owing to the imports exceeding tho exports, so, now *hat tho position has fortunately been versed, they should immediately reverb 1o tho former rates. "The facts are that tho resources of the banks were quite Sufficient, to cope with the tempoiaiy excess of imports without raising the J-at.es of interest on advances," he said. ' The increased .rates would not ha ve been forced upon the banks but for the orr '" petition of the Post Office Savings Bank bv that institution s departure fiorn retognised savings bank business. Ihe savings bank has recently modified its lerms, although not altogether to the extent of reversion to the former position. For the correctness of these roXnarks, I liavo the authority of the chairJnan of (ho Associated Banks. "We all wish to see cheap money in tho Dominion, but tho banks cannot bring it about until the maintenance and cost of their deposits are firmly established. Farmers and traders, however, fan take advantage of the bank's longterm mortgage scheme at an interest rate 6 per cent., otherwise they have to pay the rates of interest on overdrafts V-'hicli are proportionate to the fixed deposit rates. Further, it must bs remembered that salaries and. other expenses of tanks have increased enormously of late J'pars. Excess of exports over imports jvill, of course, greatly help in cheapening the rates of interest all round,