The Daily News SATURDAY, SEPTEMBER 20, 1924. THE NEW LOAN.

Taranaki Daily News, 20 September 1924, Page 4

The Daily News SATURDAY, SEPTEMBER 20, 1924. THE NEW LOAN.

The offer made by the Bank of New Zealand to the Government of the Dominion of a loan amounting to a million and a quarter sterling, in order to facilitate the operation of tiding over mortgagors in view of the approaching cessation of the moratorium, is one that should prove acceptable by the people of this country. If it be true that the banks are at the present time adverse to making advances to their customers for the purpose .of discharging their mortgages, this offer of the Bank of New Zealand at all events is equivalent to lending a million and a-quarter to the mortgagors, not directly, but through the Government, much in the same way as America made loans for the Allies, but made Britain responsible for the capital advanced. The method is one that does not lend itself to criticism, but rather reflects credit on both the Government and the bank. Mr. Massey has intimated that the loan will take the place of the £400,000 a month which he recently proposed, so that it will relieve the Government of the need for using money obtained on the London market to the extent of a million and a-quarter. The outstanding point to be noticed in connection with the Government finding money to enable mortgagors i.o make arrangements for overcoming their financial difficulties when the moratorium is lifted, is that it will be interest-bearing, while it is assumed that within the ten years’ duration of the loan most, if not all the capital advanced to the settlers will be repaid. In effect, the Government is providing a third of this money, the other shareholders of the bank contributing the remaining twothirds, the arrangement being that the bank will issue the final million and a-quarter new shares which it was authorised to raise

as new capital in 1920. The Government will, of course, receive interest on this addition to its “B” preference shares, which should certainly produce more than the five ■ and a-quarter per cent, which the bank is charging for the advance to the Government. That is one reason why the rather high interest terms attaching to the loan present a more favourable aspect than would otherwise be the ease. The fact that there will be no flotation expenses whatever makes an appreciable difference in what may be termed as the nett product thereof, while the full amount of capital offered will be actually paid over. That the bank will receive a fair return for the money is only right, and it may fairly be assumed that all the money advanced to mortgagors out of this loan will carry interest of at least five and a-half per cent., with a provision for redemption within the ten years. That the bank directors have made a proposal of great service to the country must be readily admitted, and they have added to the value of their proposal by making a proviso for the repayment of the loan at any time within the ten years on reasonable notice being given, so that if a time arrives when it will be advantageous to redeem the loan by securing the money on better terms, the way is left open for such a transaction to take place. The money paid by the Government for the further holding of “B” preference shares is an asset that can be realised upon at any time should circumstances necessitate such a course being advisable, otherwise, in view of the very heavy burden of the national debt, the policy of the Government investing in bank shares while still borrowing on the money market is open to adverse criticism. In this particular instance, however, there is special justification for the procedure which is being followed. It is gratifying to he able to save £22,500, which is the estimated amount of the cost of the transmission of £1,250,000 from London to New Zealand at the present rate of exchange, a fact that strongly emphasises the hardship inflicted on the producers by such an adverse exchange rate. On the whole, therefore, there are sound reasons for gratification that a serious financial difficulty is being shorn of some of its worst terrors. While the amount of the loan must inevitably fall far short of what the mortgagors require, it may, with other aids, suffice to enable them to carry on until new financial arrangements are possible, but the Government will be obliged to exercise due care to prevent losses bolstering up obviously broken reeds. It is to be hoped that the mortgagees will stretch a point or two in favour of the . mortgagors and thus overcome what might otherwise be a deplorable menace to the soundness of the prosperity of the Dominion.