THE FINANCIAL OUTLOOK.

Taranaki Daily News, 16 June 1923, Page 2

THE FINANCIAL OUTLOOK.

OUTLIVED ITS USEFULNESS. ] KEEPING BACK THE COUNTRY. J Wellington, Yesterday. < In his address to the shareholders of J the Bank of New Zealand to-day, Sir < Geo. Elliot said:— 4 This measure, passed as a temporary * expedient during the war, has been ex- < tended from time to time far beyond < the period its most ardent promoters < anticipated. < The Act has now been in force for nearly nine years and does not expire < until December 31, 1924. ' Whatever may have been its advantages originally, and it had advantages, < it has outlived its usefulness, as it is ' generally recognised that its continued existence has an unsettling influence on land values in the Dominion and on financial conditions generally. ' Before and after 1914 land was selling [ at high prices, prices which were not' warranted by financial results, and larger sums were borrowed than the actual values of the land warranted. It ia understood that a number of mortgagors who are sheltering under the moratorium, have made no provision whatever for the repayment of their loans when the Act expires, as the prospect of an extension has lulled many of those borrowers into a false sense of security. As a consequence, they take the risk of holding all their land in the hope of realising at a price somewhere near cost, instead of getting rid of the whole or part, even at a loss. It is to be hoped, in the best interests of the Dominion, that no further extension of the Act is contemplated by the legislature. * Indications point to considerable pres--11 sure being brought to bear on the Gov1' eminent for a further extension, but, ; in the opinion of the board of directors > : !of the bank, any extension would be a , j, grave, mistake. J It is true a number of mortgagors will inevitably have to face the result » of ill-advised land purchases undertaken * with inadequate capital, but, in the great majority of cases, mortgagees 1 may be relied upon to renew the mort--1 gages at rates of interest proportionate . to the security offered. In New Zealand it is estimated that

well over two hundred millions are lent on mortgage, a great proportion of thjp being loaned by persons of moderate moans. Tt is fortunate that little of this large amount has been obtained outside the Dominion for, whenever it is repaid, it must naturally be reinvested here. Broad acre freehold securities have been looked upon from time immemorial as a most solid form of investment, but, without a doubt, the passing of the Mortgages Moratorium Act in New Zealand, necessaryas it was at the time, dried up to a ‘large extent the source from which moneys for mortgage investments sprung and drove investors to look in other directions for an outlet for their savings. Provided there is no further risk of legislative interference, and provided the margin of safety is sufficient, mortgages on freehold lands must again become as popular as they were in the past, for they offer many advantages: they ensure repayment in a given period,’ and, in ordinary circumstances, there is little loss if reasonable, precautions are taken. New Zealand, in common with-, all other parts of the Empire, has. since August. 1914. passed through a phenomenal period. Prom time ,to time circumstances have arisen that have called for exceptional legislation. It ifl, however, now time to get back to normal conditions, for it has been proved over and over airain that, as a general principle, legislative interference with the natural ebb and flow of business has an ill-effect, reacting far beyond the immediate present.

MORATORIUM ON DEPOSITS. A DANGEROUS PRACTICE. Tiie Act’ providing for a moratorium on deposits was passed in 1921, when the financial depression set in. Unquestionably it was the salvation of many companies and firms which had been' taking deposits from their shareholders, customers and the public gencrallv. The taking of deposits by a general practice ha-s grown in New Zealand during the last ten years to an extent unknown perhaps in any other country. A number of concerns have, as one side of their business, what is practically a banking department, and: they use the credit balances and the fixed deposits of their customers to extend and enlarge their businesses. It was estimated on the passing of the Moratorium. Act that in New Zealand the total deposits with firms and companies, other than banking institutions, amounted to not less than 10 millions.

Many depositors in these concerns believe that, in the event of liquidation, they have a preferential claim on the assets. This, of course, is not so. as depositors rank in common with all other unsecured creditors for liquidation dividends. Others, who know the position, take the risk involved for the sake of the half of one per cent, more than they can obtain from banking institutions proper. Cases have come Under our notice of trustees placing trust funds on deposit with trading concerns, ignoring the fact that they themselves would require to make good any loss that might be sustained on such transactions. There are, of course, exceptional cases, but, speaking generally, the system is pernicious. It is dangerous to the lender as well as to the borrower. If business firms and depositors are prepared to take the risk, there is no reason why the system should be discontinued provided—and this is the point I desire to make —provided that traders who do a banking business be put on exactly the same footing as banks; that is, they should be compelled by statute to keep a certain proportion of their assets in a liquid state in order to provide for the demands which may be made upon them, and should be compelled also to pay exactly the same scale of taxation on the banking side of their business, as a bank pays. Owincr to the existence of the moratorium %n deposits, those who have taken advantage of it have had tune to get their houses in order. Most of them have considerably reduced then deposit liabilities by the issue of shares and debentures, but some have not done so. and it is to be feared they never will be able to do it. , The Act expires on 30th inst., and on cannot help hoping that its existence will not be extended.