The Wanganui Chronicle. THURSDAY, DECEMBER 11, 1930. BANKERS’ ADVANCES

Wanganui Chronicle, Volume 73, Issue 446, 11 December 1930, Page 6

The Wanganui Chronicle. THURSDAY, DECEMBER 11, 1930. BANKERS’ ADVANCES

■J"HE banks at the present time have loaned to their customers more money than they have received on deposit from the publie. the ratio of advances to deposits being 103.14 per cent. This excess of advances over deposits has occurred only twice before in tile last decade. In 1921 advances event, to 102.45 of deposits, and in 1927 to 103.00. 1 here is. therefore, nothing unprecedented in the present situation. The demands of the commercial community is revealed by the total of notes and bills discounted. This now stands at about £1.200,000. which appears to be a normal demand for accommodation. It is the other debts that have shown a marked increase. The Iota! of bank advances (which includes bills discounted) at September 30 for Ihe last live years have been as follows: —- 1926 £48,323,046 J 927 48.815.231 ] 928 45.119.424 ]929 49.537,992 1930 52.506,902 Oct. 27 53.103,437 Nov. li 53.433.418 Since .1926 to .November 17 of this year there has been an increase of £5,109,472 in bankers’ advances, and this live millions has been chiefly on mortgage and on overdraft. This is indeed no mean feat, for it must be remembered that the banks’ fixed deposits are short-term deposits. The Government is offering 5| per cent, for term deposits and so presumably the long-term money is placed with the Government and not with the banks, which pay but five per eent. on deposits of two years, with lesser rates of interest for shorter terms. Allicit of the money placed on short-term does not belong in .New Zealand but is owned by exporters in England and America, who arc awaiting for a more favourable exchange rate to prevail before they transfer this money out of .New Zealand. The exchange rate, namely the cost of sending money from one country to another, depends upon the relationship of imports to exports. When imports exceed exports it costs money to send a remittance to New York or to London, but the exchange rate is less as imports ami exports tend to equalise. This equalising process is now going on. Imports for the ten months ending October this year have shrunk by £3,724,100 to £37,040,126, but unfortunately exports have also shrunk by £8,558,444 to £39.567,645 for the ten mouths of this year, compared with the corresponding period of 1929. There is. therefore, an excess of £2,527,519 of exports over imports, but as the Dominion s overseas interest bill is somewhere in the vicinity of six-and-fi-half millions sterling the inadequacy of the excess of exports is obvious.

As the present export season progresses, however, the excess of exports should increase but this must depend to a great degree on the standard of values which prevail. If exports are not sufficient to balance the eost of our imports and to pay our overseas interest bill then there will be even greater calls on the banks for assistance. If. on the other hand, our exports are adequate for the requirements of the situation, then the transmission rate will decline and fixed deposits will tend to be withdrawn and transmitted overseas.

The problem which confronts our bankers to-day, therefore, is how to utilise short-term deposits by lending them out so that they will be able to be recalled from the borrowers when the import-export situation rights itself and the transmission rate consequently declines. The natural inflow of money to the banks is now commencing, offsetting the seasonal borrowings to pay for goods for the Christmas and summer trade, to pay wages for shearing, and to make advances to butter and cheese laefories pending the sale of their output. As meat, wool, buffer and cheese are sold the bankers’ loans will be repaid, at least in part, which will permit of the frozen assets, as overseas traders’ deposits are termed, being liquidated. Bankers, however, cannot lose sight of the fact that their clients’ incomes have diminished and that they -will not be able to reduce their overdrafts as in normal times. The banking problem therefore is how to accommodate borrowers while at the same time holding themselves in readiness to repay short-term depositors when the demand for these deposits sets in.