RATE OF INTEREST

Waikato Independent, Volume XXIII, Issue 3072, 19 June 1923, Page 6

RATE OF INTEREST

BANK CHAJRGES LITTLE CHANCE OF REDUCTION In the course of his address at the annual meeting of the Bank of New Zealand, on Friday last, the chairman of directors said: —-The minimum rate of interest on bank advances in the Dominion was reduced to (>J per cent on 3rd January last. The reduction of Income Tax last year, and the promise of a further reduction shortly, enabled us to reduce the rate on a great many overdrafts. Although (U per cent is the quoted “minimum’’ rate, we do not average that on the whole of our advances in Now Zealand. Hard times disclose unsuspected weaknesses in the financial condition of many customers; so much so that, in some cases, we have found it necessary for the time being to forego interest, in others to make substantial concessions, the result being tlifit the average rate of interest earned by our advances in New Zealand has been adversely affected.

There is little probability of any further reduction in our advance rates while our overhead expenses remain so abnormally hoa.vy. It is still difficult to borrow on fixed mortgage even on a fiO per cent margin, at less than per cent, hence it must be recognised that our borrowing customers have little to complain of since they have the advantage of paving on their daily balances only and not on the sum we engage to lend thorn.

Comparison is sometimes made between lending rates here and those ruling in London, but such comparison is absurd, conditions being entirely different. Australian rates certainly bear a close relation to ours, although banks in Now Zealand are subject to a much higher Income 'fax than they are in Ansi ralia.

In comparing bank rates with those charged bv private lenders and Government holding institutions, the services rendered by the banks in conducting accounts are invariably overlooked: if the public want facilities, they must pay for them

The rate of interest on mortnges under the Moratorium, which expires next

vear, is fixed under the Act at (it per cent. It has been suggested that the rate may fall when the Act expires, but unless there is also a decided fall in Australian rates this is unlikely to happen, for mortgage rates, like the overdraft rate in New Zealand, are to a large extent governed by those ruling in Australia. Undue pressure on large lending institutions here to reduce the rate of interest, would have the effect, of driving money to Australia for invest merit.

The fact must not lie overlooked that a reduction in the lending rate is sooner or later followed by a reduction in the deposit rate, and those people who are so insistent that the'lending rate should be reduced should not forget the 700,000 depositors in the Post Office and Trustees’ Savings Banks — the thrifty frugal people of small or moderate means —who would suffer from reduction in interest, rates.

In addition to the deposits of about £48,000,000 held by the Post Office and Trustees’ Savings Banks, the. Joint Stock Banks also hold interest bearing deposits to the amount of about £.17,000.000.

The claims of the fixed depositors to receive a reasonable rate of interest, must have the sympathetic consideration of.the banks; and, as any further reduction of Hie lending rates would necessitate n lowering of the interest allowed on fixed deposits, it will be readily understood that the banks are not. disposed, for the present at any rate, to make anv alteration.