THE BANK STATEMENTS.

New Zealand Herald, Volume LXVIII, Issue 20922, 11 July 1931, Page 10

THE BANK STATEMENTS.

The first impression of the quarterly banking returns, of which a summary was published yesterday, is xxnfavourable. Normally, banking resources reach their maximum in the second quarter of the year, and there is a substantial surplus of deposits over advances.' 1 Such abnormal conditions as now preyail naturally produce the contrary result, and a considerable excess of advances must be expected. A survey of banking operations in the last decade shows that they have recorded three major convulsions in the economic situation of the Dominion, and on each occasion the June returns in two succeeding years have shown advances greater than deposits. In 1921, the excess was £8,874,390, and in 1922, £4,767,048. That was the post-war slump, when overseas trade was disorganised by enormous imports and a large accumulation of funds in London was depleted by payments for them, against advances to traders in New Zealand. The severe fall in wool prices caused another disturbance in 1926 and 1927, the excess of advances in June of those years being respectively £445,392 and £4,262,739. The greater depression of the last two years has been reflected in corresponding figures of £315,124 last year and £2,226,148 in the latest return. It is remarkable that the apparently adverse position is now less severe than on either of the previous occasions. The actual excess of advances is substantially less, even than in 1927, while the movement from the preceding peak to the trough of depression has been smaller. In 1921, advances were equivalent to 116 per cent, of deposits; in 1922, the ratio was still over 111 per cent. Between 1925 and 1927, advances increased from 85 to 109 per cent. ; in the last two years, the movement has been from 83 to 104 per cent. Had the strain on banking resources by contraction of deposits and expansion of advances in the last two years been as severe as it was between 1925 and 1927, the excess of advances would now be £4,600,000 instead of £2,226,000. This comparison is particularly instructive by reason of its bearing upon the exchange position. There is a direct relation between funds held by the banks in London on New Zealand account and the proportion of deposits to advances in the Dominion, an expansion of London funds being reflected in an increase in the ratio of deposits to advances. The adverse movement in 1925-27 was £11,790,000 and the telegraphic exchange rate rose to 17s 6d per cent. In the last two years, the movement has been £11,870,000 and the exchange rate is 10 per cent. The comparison strengthens the conclusion that New Zealand exchange has been excessively depreciated by Australian influences, which exerted a prejudicial effect owing to the attempt to maintain an artificial basis of exchange with Australia. There is evidence in the banking statistics, especially the latest weekly returns, that substantial progress has been made toward equilibrium, and attention must presently be given to the possibility of restoring normal rates of exchange, and thus hastening the reduction in production costs. ' .