Western Star And WALLACE COUNTY GAZETTE. Published Every Tuesday and Friday. TUESDAY, FEBRUARY 5, 1924. OVERDRAFTS AND BANKS SECURITY.

Western Star, 5 February 1924, Page 2

Western Star And WALLACE COUNTY GAZETTE. Published Every Tuesday and Friday. TUESDAY, FEBRUARY 5, 1924. OVERDRAFTS AND BANKS SECURITY.

Iu our last issue we' gave tile first part of an address to business men by Mr B. A. Moore, a‘ banker, in which he dealt with cheques. His next part dealt with the subject of bank overdrafts—that is tb hay,'that much discussed and frequently misunderstood method, of borrowing money—namely, on current account from a bank. He remarked, in the first place,- that it had to be clearly understood , -that, a bank’s ability to lend money wag almost entirely due to and limited by the'amount deposited in that, bank by the public—that is entrusted to its pare. The amount of capital ..representing-the, shareholders’ interest in a bank is very small compared with the deposits of the public. Hence it. is practically the depositors’ money —that is really.trpst money that the banks lend. And in' lending it,, the banks exercise every reasonable risk of,-loss. In these last two years many complaints have been niade about the conservatism of biit if it were remembered that banks' can only lend what funds the public entrust to them—and only a proportion of' those, and that the money lent, is praptically trust monies, it will probably help some to realise thatthe attitude of the banks is necessary am the beet interests of the. public as - a whole. • For those with merely a ha-ay idea of what it means to arrange "for ■ an overdraft with a banker, he explained that to arrange for an overdraft with your banker is merely to arrange with him that yoh can draw cheques on - the bank over and above your credit balance up to an arranged amount usually referred to-as a limit. Whait■•oVcr amount you arrauge\for you aye only charged interest oil 1% amouiit you are overdrawn froin day\to'. day. .Therefore, while your accoiuitus-mver-fliawn it pays you to pay in your own takings as often as possible, thereby saying, interest. ' v , Given normal times, such as we are .now entering on again, the question which is constantly recurring to busi,ness men and farmers is: .'.Where can I raise dome money? Must I. go and sell something I don’t want to* sell? Or must I go to a solicitor and raise money on mortgage? Or will n.y , banker lend it- to me on overdraft ? !"s|}ien borrowing 'on overdraft from a

bank it is well to three points: (1) The amount is repayable on demand—that' is, whenever the bank calls it up. (2) < The interest rate varies and is usually U to 1 per. cent, above what you can borrow on fixed mortgage outside. (3) The se» curity must be undoubted. - On the other hand you (1) cau pay off your loan at any moment without notice; (2) you can. get the benefit of any monies you may hand in from clay to day—even though you draw them out again within a day or two. Another question to be’decided by a borrower is: Do I want the money for a long; period or do I expect to be able to repay it in the course of two or three years—or it may be in the course of two or three months or even weeks ? If it is a. case when you want money to, *say, build a house or buy property, and see little prospect of paying it off for years to come, it is hardly a case for a bank overdraft. Get a fixed mortgage through a solicitor at the lowest rate of 7 interest obtainable. But if the borrower every expectation of repaying the loan rapidly, it is a case for considering arranging, if possible, for a loan overdraft from liis bankers.

Dealing with the points a banker considers when a proposition comes before him for an. ovedraft, he said it is needless to say bis first consideration is the honesty arid integrity of the. borrower. Unless his bankers' consider him a reliable man a wouldbe borrower wouldn’t get much, whatever security lie has to offer. Secondly, the banker considers his business or his capability as a fanner, as far as lie can ascertain them. Thirdly, if sufficiently .satisfied on the first two- points, lie ascertains the borrower’s financial standing; and fourthly, what .security he proposes to offer. *

“Before I go- on to the matter of what is suitable security such as would be acceptable to a banker —I jrish to touch on this point of ascertaining first of all particulars of a client’s position before granting an' overdraft. Every banker lias experienced difficulty in getting from some of bis client! information as to their assets and liabilities. It is felt, possibly that- the banker is too inquisitive. The. intention is far from mere inquisitiveness.' On the same principle a. medical man-requires to know all his patient’s physical state before lie knows .'wliat sort .of draught to give liirn.' On inquiry into these masters, just as the doctor sometimes finds it a case not for a draught but for, surgical operation, so does a banker sometimes find it is a case notfor an overdraft, but for the Official Assignee. Just‘as a doctor can better relieve his patient the more thoroughly he knows his physical, constitution, so can a banker ’ .better advise and assist the client the more completely he knows that client’s affairs. Finally, a' banker looks to a client’s general financial position and A prospects to obtain repayment of a> loan rather than to‘the security taken., As to wliat is the form- of security usually acceptable to 1 a bank it will he readily understood ' that the. more gilt-edged, the security the more ready the banker is to lend against it. Probably the most acceptable' security to- lodge is Government bonds—if you have any—against, which you* can usually obtain up to say'Bo or 90 1 per cent, of the; market value. Local body debentures come next- probably as.a safe cover. Next is against first mortgage of freehpld, town or country land. A banker will usually lend up to 60 pei‘ cent, of '-the value, but he usually values on'a more conservative basis than the owner, who «is usually; an optimist as regards tfie value of big property. The wisdom of •■.thus, adopting a .conservative basis —which has been one of the chief complaints against the banks—was nmist' clearly exemplified when the recent slump in values arrived. Had' the banks corn-' sidered the selling value of land, say in -1919 and 1920, as in any way. a /safe basis to lend on,-they would have been in Queer Street when the slump arrived, and ’the resrilt '• would have been most disastrous to ■ the whole ..country.. Assuming, therefore, that von have to offer a first mortgage .of your property, or that you are the holder of a'good first mortgage and wish to borrow against it, it is .a firstclass banker’s security. v