INTERMEDIATE CREDIT

Wanganui Chronicle, Volume 76, Issue 287, 5 December 1933, Page 10

INTERMEDIATE CREDIT

BOARD’S ANNUAL REPORT OPERATIONS STEADILY GROWING INTEREST RATES REDUCED. The annual report of the Rural Intermediate Credit Board, which has been presented to Parliament states that in view of the nature of the times, a policy of easing conditions for borrowers has been continued. In accord with the expressed wish of the Government the board has reduced interest rates on all classes of loans.

“In the two previous reports of the board reference was made to the difficulties which had been experienced by farmers in meeting their obligations owing to the serious and continued decline in the prices of all classes of primary produce,” says the report. “So far from the position showing any improvement during the year now under review, the adverse conditions were accentuated, especially in the case of dairy-farmers owing to a further marked decline in the prices received for butter and cheese on the English market. Most dairy-farmers had based their expenditure for the year on an anticipated return over the whole season of at least Is per pound for butterfat, whereas the return actually received was generally between 9d and .10 per pound, the reduction thus necessitating a drastic revision of the outgoing under various headings. Under these circumstances many applications were made to the board for some measure of relief in the principal repayments required in terms of the board’s loans.

“The position of sheep-farmers has been equally unsatisfactory, and loans to farmers of this class have also required close supervision and control. It is widely recognised that loans on chattel securities call for close attention, even in times of normal prosperity, ami the need of supervision is largely increased in times of difficulty such as the present. Thus, although the total of loans granted fell considerably below the level of the amounts advanced in previous years, the administration of the system has entailed, if anything, additional work in maintaining adequate supervision and control over the existing loan accounts and in dealing with the numerous applications made by borrowers for temporary variations of the terms fixed by the board for the repayment of their loans. At the same time, it is gratifying to report that iu face of the existing conditions the majority of the borrowers have made their payments satisfactorily, and that the concessions granted have related almost exclusively to the principal repayments, the amount of interest outstanding at June 30, 1933, being only £6OO. “The board has continued its policy of easing conditions for its borrowers so far as its duty to the debentureholders who have entrusted moneys to it for investment will permit, and where concessions have been shown to be necessary and justifiable they have been freely granted in cases where the board is satisfied with the borrower’s conduct and the position of the security. While the board has endeavoured to fulfil the intention of the Rural Intermediate Credit legislation that loans should, if posible, be fully repaid within a period of five years, it has recognised that under the present abnormal conditions this ideal is not always attainable, and that some relaxation of the terms of the loans is neces-

sary until the prices of primary produce improve. It has consequently reduced substantially the annual repayments in a number of cases, although it has realised that this action will render it impossible to clear the full amounts of the loans within the five-year period. ‘‘ As will be seen at a later stage of this report, the policy of fixing the annual repayments of principal has been fully reviewed in the light of existing conditions, and the board has also modified its original policy that where further advances are granted to borrowers the additional amounts must •be cleared within the period of the original loan. The board is thus doing everything possible to see that its borrowers are not unduly harassed in their financial operations and that they are allowed the necessary funds for livingexpenses and for the efficient working of their properties, though they arc, of course, required to see that expenditure is kept at as low a level as pos-

“As evidence of the extent to which the board’s operations have grown, it may be stated that the total business which had been transacted up to June

30, 1933, or was then under consideration through rural intermediate credit associations under Part II of the Act, by the granting of loans direct to farmers under Part 111 of the Act, and by the discounting of promissory notes, showed an increase of £74,328 over the total of £937,999 at June 30, 1932. For the first time since the board commenced its operations the total business transacted or under the consideration has exceeded £1,000,000. When it is borne in mind that the average loans granted by the board arc comparatively small, it will be seen that the figure quoted is an impressive one.

“For the year ended June 30, 1932, loans paid out by the board under all headings totalled £127,034, whereas the total for last year fell to £72,154, which was the smallest amount paid out by the board in any complete year of its operations. The factors which have led to the decline of business were dealt with fully in the report for the year ended June 30, 1932, and it is unnecessary to refer to them in detail in this report; but briefly it may be stated that the reduction is principally attributable to the reluctance of many farmers to undertake fresh development or improvement of their properties, even for productive purposes, in view of the uncertainty whether the prices obtainable for the additional produce would warrant the expenditure. Other factors which have operated are the cautious policy adopted by the board in granting loans during the £106,000 to be advanced from the consolidated fund free of interest lor a period of ten years. “It is due to the use. of £266,066 of this sum, free of interest, that it has been possible again to show a profit on the year’s working. “Issue of Debentures.—Owing to the large excess of repayments over advances, it was found that the board could not profitably use all the, funds available. The sale of debentures was I here lore suspended, and debentures to the value of £32,500 wore purchased by the board from the holders, and. in addition, the balance—£4soo—of Ihe £lO,OOO special advance made by the Treasury in May, 1931. Io enable advances to be made to farmers for purchase of fertiliser was repaid.”

present period of unsettlcment, although no account, was declined where the applicant had a reasonable prospect of meeting his commitments, and the decision, of the board to give preference to applications which would lead to increased production, and as a general rule and in the absence of special circumstances to decline applications having as their object the liquidation of existing liabilities to stock companies, banks, and other financial institutions. During the past year the board has found it possible to lift this restriction, and in view of this change of policy and the somewhat improved outlook for the farming industry an increase in the board’s business may reasonably be anticipated. The supply of funds held is fully adequate to meet all demands likely to be made upon the board for assistance. In response to the. Government’s expressed wish for a general reduction of interest rates and with the object of assisting borrowers, the board reduced the rate of interest charged by it on all classes of loans. Hitherto the rate payable by farmers on all loans, whether made direct or through associations or under the discounting system. has been 6$ per cent., tho board lending to associations at 6 per cent, to enable them to obtain a profit, interest of 4 per cent, with which to moot their working expenses. From May I, 1933, the rate of interest charged to farmers was reduced by 4 per cent, to 6 per cent., the rate payable to the board by associations being correspondingly reduced to 5J per cent. The reduction involves a financial sacrifice on the part of the board. The reduced rate of interest must be regarded as a very favourable one for loans on the classes of security which the board accepts, particularly when it is remembered that interest, is computed on the daily balance and ceases to run on any amounts repaid.”