STATE ADVANCES

New Zealand Herald, Volume LXXIII, Issue 22433, 1 June 1936, Page 11

STATE ADVANCES

PROVISIONS OF BILL BUSINESS MEN'S VIEWS LETTER TO THE MINISTER Provisions of the State Advances Corporation Bill are discussed, and certain suggestions made, in a letter forwarded by the Associated Chambers of Commerce of New Zealand to the Minister of Finance, the Hon. W. Nash. The letter states the.t the chambers approached the Minisier's predecessor in connection with the Mortgage Corporation of New Zealand Bill and endeavoured to make some helpful suggestions, and the executive wished to afford the present Minister similar assistance with the new legislation. Under clause 11, the letter states, the Minister is authorised to attend meetings of the board, but the clause as drafted does not indicate that the Minister will have more than a listening brief. It is asked whether this clause should not specifically state that the Minister is entitled to speak and to vote. In this connection, it is added, part of sectfon 23, providing that every direction in writing given by the Minister shall be binding on the board, has not been overlooked, but there may possibly be occasions on which he would desire to indicate his wishes to the board without the necessity of giving a direction in writing. " A Retrograde Step "

"In the view of the business cam- i munity there was a distinct ad van- ■ tage in having the lending operations . of Government directed and con- j trolled by an independent board not 1 subject to political pressure," the let- i ter continues, in respect of clauses 22 ' and 23. "We feei that it is a retro- j grade stop to revert to the old system j under which it was possible for a borrower from the Government, who was not necessarily deserving, to make use of his local member of Parliament to approach the Minister for concessions." The provisions for State guarantees of securities issued by the corporation, as set out in clause 24, are dealt with I in the letter, which states that it is j appreciated that this is done to secure that all future moneys borrowed for | State Advances purposes shall be ob- | tained at the lowest possible rate, but I it appears that" the inevitable conse- j quence will be, in the eyes of lenders j to the Dominion, that the public debt I is increased by the amount of the guar- j antee, so that they will, in respect of : overseas loans at least, if not in the case of local loans, require higher interest rates than would otherwise be the case. Repeal of Limitation The repealing, under clause 25, of the restriction on the borrowing powers of the corporation, is commented upon, and the letter states that the provisions of section 21 of the principal Act were based on the precedent of similar bodies in other countries. At that time the chambers pressed for a lower proportion than was ultimately embodied in the bill, and they regret to see that it is now proposed to repeal this limitation, and to permit the corporation to borrow without limit and without reference to Parliament. "As the securities issued by the corporation rank pari passu, it seems to us that this extension of the power of the corporation is a serious breach of the letter of the contract which the corporation has entered into with those persons who have already advanced money to it," the letter continues. "We appreciate that your answer to this will be that the guarantee of the State is an adequate quid pro quo, but we consider the giving of this guarantee is subject to grave exception. "Not only so, but we feel that statutory variations in the contract between them and the Mortgage Corporation or the State, as the case may be, have a disturbing effect on those who are subscribers to loans raised by the corporation or the State. "We doubt whether it is necessary or advisable in the interests of the Dominion as a whole that the corporation should be given power to make advances for the development of industries or the establishment of new industries," the chambers' letter says, dealing with clause 28. "We think that past experience has shown that any proposed new industry which has a reasonable prospect of success, succeeds in obtaining sufficient capital from the investing public. Security lor Advances

"In any event, should it be desirable or necessary for the State, through the State Advances Corporation, to come to the assistance oi : _ any industry, we are definitely of opinion that the State's assistance should be given as a mortgagee and not as a shareholder or partner, and that the moneys advanced should be as fully secured as possible. "In our representations to your predecessor we took exception to the principle that the corporation should make advances exceeding the amount which is usually recognised as a safe maximum for first mortgage advances," the letter adds, in respect of clause 21', which deals with State guarantees m respect of loans in excess of two-thirds of the value of seenrity. The chambers state that they appreciate the provisions of sub-section b, which provides that where a loan is granted by the corporation in excess of two-thirds of the value of the security, the whole or any part of the excess shall, if the board requires, be treated as a separate loan secured by a second mortgage containing such special terms and conditions as the board thinks fit, but they add they are definitely of the opinion that it would be preferable if this sub-section were mandatory and not merely permissive. Insurance as Security

''The principle of taking collateral security over a life policy is, in our opinion, an excellent one," the letter concludes, in connection with clause 32. "May we, however, suggest that the scope of this clause might with advantage to the corporation be definitely widened? There are many prospective borrowers from the corporation who at present have their lives insured not necessarily with the Government Insurance Commissioner. In some cases those policies have been running for a number pf years, and have acquired a considerable surrender value, with the consequence that they ar« a more satisfactory and ample collateral security than any policy taken out contemporanenously with the granting of the loan.

"It may quite well be that a prospective borrower finds himself unable to face the additional expenditure necessitated by his taking out a further policy. While we appreciate that borrowers from the State might reasonably be expected to give preference, in respect of life insurance, to the State's own department, we think that policies issued by reputable life insurance societies and companies should be* acceptable to. and accepted by, the corporation."