AN AGRICULTURAL BANK

Otago Daily Times, Issue 18802, 3 March 1923, Page 12

AN AGRICULTURAL BANK

MR rOLSON’S SCHEME OUTLINED.

CRITICISM BY BANKING AUTHORITY.

(From Orr Own Correspondent.) WELLINGTON, March 2. The president of the Ne-w Zealand Farmers' Union, Mr W. J. Poison, has mode public the draft of a Bill to give effect to his proposal lo establish an agricultural bank in the dominion. Tho governing body is to bo a. central oxcontrvo consisting of 11 members, nine appointed by tho provincial bank boards, and two by the Government. Each of the following provincial boards of tho bank will elect one member of the central executive ; Southland. Otago, Canterbury, Nelson, and Westland comirined. Wellington, Taranaki, Hawkes' Bay, and Poverty Bay combined. Auckland will elect two members. There are provisions in regard to salaries (o the chairman and members of tho central executive, the frictions of the executive, and also in regard to provincial boards. Bank branches will ccns.st of no fewer than 15 members who arc producers. Each branch will annually elect a committee of advice, consisting of live of their number. The committee of advice will decide each case upon its merits regarding iho amount of loan to bo granted by (ho bank. Under the heading “membership pharos” the following provisions appear. No person can become a client or member of tho b.tnk who does not agree to become a shareholder in the bank to tho extent of one-tenth of the amount of tho loan desired. Tliis will act as an incentive to every borrower to act fairly with tile bank. Shares of £lO each will be issued to each borrower. The minimum will bo one, and the maximum 200. Within seven days of a borrower being notified that a loan had been granted him, he would have to pay his first call of one-tenth of the value of his shares—i.e., suppose a farmer wore to borrow £2OOO from tho Feiilding branch of the Now Zealand Producers’ Bank, £2CO worth of shares would bo allocated to this man in tho Producers’ Bank, and £2O would have to bo paid as first call within neven days of the notification of the loan. Further calls (each not greater than one tenth of the value of the shares) would be made at. the discretion of the executive, until . the shares wore paid up in full. The calls would not bo more frequent than one per month. The bank, it is stated, docs not intend to develop into a huge profit-making concern. Dividends need not be paid. If they are, they will not exceed 5 per cent, of the paid-up share capital. In no case will loans exceed 66 per cent, of the value of tho land offered as security by tho borrower. This security may bo (a) an estate in fee simple in any land in New Zealand; (b) any holding or tenure under tire Crown and Native Lands Acts. Leans will be made' per medium of bond. Applications for loans under £SOO will have priority over those of a larger amount, other things being equal.' The maximum loan will be £20,000 and the minimum loan £SO. Loans will be for not less than 10 years, nor for more than 30 years. Loans in the main will bo granted for reproductive purposes. The bank may specify tho purpose for which the loan may be made. If in the opinion of the bank a loan has not. been applied to such a purpose, the bank may cause tho borrower’s estate to bo sold.

repayments will bo on the amortization principle. Every year a, * borrower would pay interest on loan, plus one-half to one per cent, of tho original loan. Repayments would have to bo completed within ID to 30 years. Every shareholder in the bank shall bo jointly and severally liable pro rata for his share of any loss made by, the bank. "* Tho funds of the bank will be obtained: (1) By shares purchased by members; (2) by payments into sinking fund, through the repayment of part of each borrower’s loan every year; (3) Stale grants or loans; and (4) deposits of individuals. In order to carry on its business as an agricultural bank tho Alow Zealand Producers’ Agricultural Bank will have power to: (1) Acquire, hold, sell, convey, lease, assign, or otherwise assure land of any tenure,- (2) receive money on deposit, for a fixed term, or repayable on notice, and pay interest thereon; (3) issue bills and drafts and grant letters of credit; (4) discount bills, drafts, and Government securir ties; (5) borrow money; (6) issue loan bonds up to 66 per cent, of the land value; (7) grant overdrafts, payable on demand, to producers, on tho security of crops, wool, stock, plant, or machinery, guarantees, promissory notes, bills of exchange, or on other security approved by the bank; (8) charge interest on such in conformity with usual banking practice; (9) accumulate reserves to tho value of 5 per cent, of the total bond issue of the bank; (10) issue debentures, bonds, or inscribed stock. A BANKING EXPERT’S VIEWS. Opinion in the city is decidedly unfavourable to Mr Poison’s agricultural banking proposals. Tho general .feeling is Voiced by a leading authority whom I interviewed this afternoon. To begin with he drew attention to the fact that there are to be 72 members of provincial boards, 1 11 on the main board, and in addition five of a committee of advice,' no fewer than 38 in ail. It is to .be presumed that all these will have to bo paid for thoi%B3rviccs. But apart from that tho matter is of interest, to the customers of the hank from another point of view. Very few would care to have their business known to so many of their friends and acquaintances. Especially would the best customers resent this. Any customer of an ordinary bank knows that his business will not be talked about outside his own bank. It is to bo presumed that the loans up to 66 per cent, of the value will be used mainly for reproductive purposes, which will mean that as a rule the farmer will be expected to own tho land. The experience of the ordinary banks is that that will not meet what is wanted by tho average small farmer. In nine cases out of 10 he wants assistance to pay for his land. If tho money is wanted for improvements there will not bo many of the needy farmers to whom tho bank will be of much assistance. The man the agricultural bank is supposed to help is very seldom in a position to pay for tho land, oven in its unimproved state. This will put a limit on its usefulness to the very class for which it is intended. In regard to amortization the proposals as published, it is pointed out, are insufficient. In tho case of the half per cent, mentioned it would take 49 years to pay off the principal, and in the case of one per cent, it -would take 37 years, Mr X’olson says repayments would have to bo completed within 10 to 30 years. Perhaps lids part of tho scheme has not been fully elaborated or explained. The groat objection to the scheme, and one that will damn it in the eyes of those who have -had experience, is the proposal of a joint and several guarantee. This will prove a great stumbling block to shareholders who may wish _y> borrow outside. They will ho shareholders in a.n unlimited, not a limited, bank. There are limes when most farmers need some assistance from stock and station agents, but these agents wall look, askance at men who are in the position of having given a joini and several guarantee in connection with an unlimited bank. Such shareholders in tW agricultural bank will Ixs jointly and severally liable for the whole loss —not only their own losses, but the losses of tho weaker men as well, ft will bo a cumulative responsibility. So far there is nolliing to indicate what tho character of Iho proposed banks branches will be, but it is presumed that tho bank" will have to open a large number of branches throughout the country, and to provide a staff for these branches. All this will involve a heavy outlay, and it is not easy to see how it cun bo done with tho small capital foreshadowed in Air Poison’s Bill. If, in course of time, the operations of the bank became large it would no doubt accumulate capital, but in tho meantime it is not easy to sec whore tho money tor tho initial outlay is to come from.

The proposal prcrviding for State grants or loans to the bank comes at rather an inopportune tituc, considering the present financial position of the country; and there is the further important point to be exjnsiderorl that the. Government would be assisting a venture, the success of which is not at all assured, to compete with the Hunk of New Zealand, of which it already owns practically one-third. Finally, the promoters of the proposed bank will ho laced with thin difficulty : Js it likely that a Ixmk that will have no liquid resources will attract, depositors in competition with other hanks that top liquid -resources to pay depositors whenever the (Kxrasion arises? The proposed bank will have no Ihiiiid resources, because all will be lent out. It will not. under