FARM FINANCE

New Zealand Herald, Volume LXXV, Issue 23061, 11 June 1938, Page 17

FARM FINANCE

SHAKE OF THE BANKSg TENDENCY TO INCREASE. EVOLUTIONARY TRENDS EFFECT OF LEGISLATION [by telegraph—OWN correspondent} WELLINGTON, Friday Some local peculiarities of banking business in New Zealand, particularly its assistance to farming industries, and evolutionary changes now occurring in it, were discussed by the chairman of the Bank of New Zealand, Mr. A. T. Donnelly, in his speech read at the annual meeting of the bank to-day. A comparison of the average figures of the six trading banks for the March quarters of 1938 and 193/, said Mr. Donnelly, showed a decrease of £223,292 in free and fixed deposits and an increase of £6,699,429 in advances. Free deposits increased by £493,644 and fixed deposits decreased by £716,936. The proportion of advances to deposits was 81 per cent for the later period and 71 per cent for the earlier. Proportion of Advances

The main increases in the Bank of New Zealand's advances during the past financial yearwere largely attributable to fuller finance for farming and associated activities. This was shown by the following analysis of advances, in millions of pounds, for the March quarter of 1938, the figures for the same quarter of 1937 being given in parentheses: —Farming, £8.4 (£7.5); industries allied to farming £2.9 (£1.9); stock and station agents, £.7 (£.3); totals, £12.0 (£9.7). The advances to these three groups represented slightly more than half of the bank's total advances. The increase of £2,300,000 in them was nearly fourfifths of the increase of £3,000,000 in the bank's total advances.

"This Bummary analysis reveals the extent to which the bank participates in the finance of farming and associated activities, and illustrates the peculiar character of the evolution of the business of trading banks in New Zealand," continued Mr. Donnelly. "To an extent that has no parellel in most overseas countries, the trading banks of New Zealand have provided finance for farming industries and have thus varied the practice common to most overseas banking institutions. Such an adaptation to the particular requirements of the country has, however, proved both necessary and desirable, and may. under the influence of changing conditions, require further extensions in the future to other fields of production.

Government Policy , "The special direction in which sucli :, finance may be required and the extent to which it can be provided by the trading, banks , will, naturally, depend mainly on Government policy. The board takes the view, however, that, while it may legitimately discuss sucll y changes as a possible contingency, it is not in a position to define the extensions or variations of financial procedure that may be required until Government policy affecting the develop- 1 ment of industry has been more-fully stated. . , "Nevertheless certain changes in banking practice aro gradually occurring under the pressure of altered economic conditions and of It would appear highly probable that the mortgagors' relief legislation has adversely affected the availability of mortgage money and that consequently .. the trading banks nave- been called upon to provide a considerable amount of finance which previously had been obtained from brivate lenders. The legislation has also affected the essential nature of overdraft accommodation, which under many decisions or relief tribunals has ceased to be a demand liability, but has been fixed for long periods of years. It is true that J similar arrangements have been frequentlv entered into voluntarily, bv the bank since the introduction of the legislation, to concede by settlement the relief that, in our opinion, would have been granted by the commission.Withdrawals lor Investment

"One development to which .attention may be drawn is the concurrent increase in advances and decrease in fixed deposits. The ratio of advances to. deposits, both fixed and free, for all banks his in 12 months risen from 71 per cent to 81 per cent. This increased ratio is due partly to an absolute increase in the volume of advances and partly to a decline in deposits. To some extent the decline in fixed deposits Is accounted for by withdrawals of individually small sums for transference to the Post Office Savings Bank, where a higher rate of interest can be earned, but there is a drain due to the lifting of larger deposits for investment purposes. Many businesses, which in the period of depression were unable to find satisfactory investments for their surplus funds, placed them on deposit with the banks, and have, under exSanding trade conditions, since withrawn them."

DEFENCE OF BANKS

CONSERVATIVE POLICY %. SERVICE TO COMMUNITY CRITICISM ANSWERED [BT TELEGRAPH —PRESS ASSOCIATION] WELLINGTON. Friday "In New Zealand one result of the recent world trade depression has been to blame largely for its cause the lata Government and the banks,"' said Mr. Norton Francis, in moving the vote Of ' thanks on behalf of the shareholders to the directors, general manager and staff at the annual meeting to-day of the Bank of New Zealand. A section of the community, he said, desired to get rid of the shareholders and make the bank a Government institution. They imagined that the financial difficulties of the Dominion and the people would disappear immediately and never recur if such a course were adopted. Any successful business was envied by some people and criticised by ot-wis, who would not examine carefully the -reasons for its success. In the case of the Bank of New Zealand the directors, after the experience gained during some unprofitable jears of trading in the last century, had adopted a conservative policy in dealing with profits. This had resulted in the building up of large reserves, which enabled the bank, with others in New Zealand, to face the financial world crisis with courage and, by a policy of liberal advances,' to hold together the many ■ trading ; dependent on their bahker'* assistance . in time of stress. The result was that this Dominion, as a whole, was Jess, disturbed, and recovered . more Jjnickly from the world slymP than most othc. countries. , ~ . it,* Surelv.. continued the speaftw", community should boon„ and not seek, to destroy^, •wind? had: helped so assistance in any future trpnW* iifi