LOCAL BODY LOANS

New Zealand Herald, Volume LXXIII, Issue 22516, 5 September 1936, Page 15

LOCAL BODY LOANS

THE RATE OF INTEREST SAVINGS BANK'S ATTITUDE CRITICISM BY MINISTER "WRONG IDEA OF SERVICE" [BY TELEGRAPH —SPECIAL REPORTER] WELLINGTON, Friday The reported refusal of the Auckland Savings Bank to lend £2.3,000 at per cent to a local body because of "Government interference," was the subject of comment to-night by the Minister of Finance, the Hon. W. Nash. Tho published report regarding the bank's decision made it appear that i it« uneasiness was caused by its liaj bility for increased income tax and by ' its apprehension concerning tho Govj ernment's purpose to stop interest rates | rising. j "1 cannot see why the Auckland I Savings Bank should have any reason | for apprehension or alarm," said Mr. I Nash. "As a savings bank it is someI thing in the nature of a social institu- ; tion and as such should be concerned mainly with the interests of its depositors. Anxiety concerning increased income tax liability and stabilised interest rates does not suggest concern in that direction. It suggests rather a desire to build up profits, and as there | are no shareholders in a savings bank there cannot be any reason for that. Purpose of Bank "A savings bank should be an acceptable repository for the people's savings. It should ensure that there i« £IOO to pay out for every £IOO deposited and at the same time handle its affairs in I such a fashion that interest can be paid on the money deposited. Naturally it should be conducted on safe principles, hut its purpose is not to make profits for shareholders. "The Auckland Savings Bank is a trustee savings bank. The directors J are appointed by the Governor-General j as trustees for the depositors' money. |ln addition the deposits are guaranteed by the Government, which limits the interest rate on deposits to 3 s per cent. "As I have said, the hank has no share capital and therefore is not faced with the necessity of making profits for shareholders. Its interest rate payable to depositors is fixed and the i bank cannot logically complain of the Government's preference for low interest rates when any increase would lie followed automatically by general i increases in interest charges—one of i the major causes of instability. Question of Taxation \ "Nor can it logically complain about taxation. Taxation is used for social services and in fact the profits earned by the bank are supposed to be given to charity. ! "Tt is admitted that every wellj conducted bank needs reserves. The ! last report of the Auckland Savings | Bank stated that most of its net profit j for the year was needed to strengthen | the reserve position, but the statement of accounts showed that the reserves I stood at £820,000. equal to more than | 10 per cent of the bank's deposits, j which, in any case, are guaranteed by ! the State. | " The balance-sheet last March S showed that the bank had £1,210,000 j of funds uninvested. The inference is I that the bank has been waiting for I interest rates to rise. The same infer- : dice is to be drawn from the manager's ] statement that the bank cannot or will not grant a loan of £25,000 at 3J per cent. " Cheap Finance Essential " " The position of the bank with ade j qunte reserves in addition to a Government guarantee is sound enough for anybody. If in refusing to realise that | the day of high interest rates is past it refuses to make money available it has a wrong idea of service to the community and. in the long run, of ; service to its own depositors. " One important point is that the bank, by withholding over £1,000,000 from investment at current interest rates, is creating a tendency for intcr- | est rates to rise. Cheap finance is an essential to-day in many directions and the bank's'action in this respect can hardly be termed helpful. In fact, it would appear that the bank and other institutions referred to in the same report arc holding hack funds in an endeavour to force the Local Government Loans Board to raise the rates of interest." j