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Friday, 25 September 1942

Mr CHIFLEY (Macquarie) (Treasurer) . - by leave - I move -

That the bill be now read a second time.

In presenting the budget, I informed honorable members that the Government would introduce a bill for the establishment of a mortgage bank department of the Commonwealth Bank at an early date. This bill gives effect to that promise.

The establishment of a mortgage bank is an objective that has been approved by all political parties. For a long time, it has been admitted that the absence of a mortgage bank was a deficiency in the Commonwealth's financial structure. Its esstablishment will enable rural producers to obtain long-term loans at reasonable rates of interest, and at the same time give to borrowers protection against pressure for repayment in difficult times. It is hoped that the activities of the new mortgage bank will thus, at least in some measure, relieve the financial position of those primary producers who have been dependent upon overdrafts callable on demand or have been unable to obtain other than short-term loans of a. few years' duration. The operations of the mortgage bank at the present time will, of course, be severely restricted, compared with the contribution that it could have made had it been established when first recommended by the Royal Commission on the Monetary and Banking Systems in 1936. At the present time, the financial policy of the Government is wholly directed towards limiting new investment in avenues other than those that make a direct, contribution to our wartime programme. The Government believes, however, that the mortgage bank, if established, can prove a powerful instrument in post-war reconstruction. It has therefore decided to push on with. it3 establishment in order that its organization, which necessarily will take som.? rime to set up, may be well established when hostilities cease and the task of reconstruction has to be undertaken.

In the meantime, even though its initial operations must of necessity be on a limited scale, it will be able to make a contribution to the problem of rural finance. The Government believes that the new Mortgage Bank will be able to exert an important influence in assuring in rural producers that their mortgage finance requirements will be provided, generally, at a reasonably low rate of interest. It will set a standard for longterm fixed loans of this nature, which it is hoped other institutions and private lenders will follow. Already, the Government has taken action to reduce interest rates over the whole range of finance. Maximum interest rates have been fixed for most classes of loans. Wherever possible, the rates have been altered downwards. The Mortgage Bank department of the Commonwealth Bank should also be able to exert its influence in this direction.

I am not. able to give to honorable members a good estimate of the amount of rural indebtedness in Australia, but, as a rough guess, I should think there would be something like £400,000,000, of loans and advances to rural producers, without making any allowance for indebtedness on account of implements and farming supplies generally, for which the sum owing would be considerable. In arriving at the amount of £400,000,000, I have allowed for £S0,000,000 of loans by State government instrumentalities, about £140,000,000 by banks on overdraft, and another £80,000,000 by pastoral. insurance and trustee companies, whilst I have put down private mortgages, of which no figures are available, at another £100,000,000. These figures will give some idea of the scope for long-term lending in rural industry and, at the same' time, show how impossible it would be for a mortgage bank to undertake the raising of sufficient funds immediately for any rapid taking over of mortgage debts. It will, be realized that the extension of mortgage bank facilities must, therefore, be a matter of slow growth.

At the moment, there are certain manpower difficulties that prevent any rapid expansion of facilities through the creation of a mortgage bank. I refer to the staff difficulties being experienced by the Commonwealth Bank, in common with other institutions. The bank's male staff has been depleted since the outbreak of war by over 50 per cent., and whilst it has been possible to replace some of this staff by women assistants, this depletion of staff, coupled with the extra work falling upon the bank in connexion with financial matters associated with the war, has created very real difficulties in the way of giving any extension of existing facilities.

Turning now to the Government's proposals in connexion with the bill itself, it will be seen that the Mortgage Bank will be a department of the Commonwealth Bank, and be under the control of the Bank Board. In order that the Mortgage Bank might function effectively it is essential that it should have experienced, efficient and economical management, and that it should obtain funds at the best available rate so that it can, in turn, lend at reasonable rates of interest.

The Government considers that in the Commonwealth Bank it has an established institution, capable of successfully carrying out the functions of the Mortgage Bank. The board's personnel includes men well acquainted with rural problems. The bank has a widespread system of branches and agencies, and many of its officers have already had experience of the kind of loan which the Mortgage Bank is intended to make. However, the new Mortgage Bank will be kept quite distinct from the central bank functions of the Commonwealth Bank. The present bill proposes the creation of an entirely separate department to provide appropriate long-term lending facilities. Strict safeguards have been framed to prevent the assets of the general bank from being used in the business of the Mortgage Bank department except to a very limited extent. The general bank may make advancesto the department, subject to the amount outstanding at any one time not exceeding £1,000,000. A special provision in the bill will prevent the funds of the general bank, and of the Savings Bank also, from being used in the business of the Mortgage Bank department, except as provided.

The capital of the proposed department, which is not to exceed £4,000,000, will be obtained from -

(a)   the transfer of £1,000,000 from the special reserve held in the note issue department, being part of the premium received on the sale of gold;

(b)   one-quarter of the annual profits of the general bank department of the Commonwealth Bank. This would be in the region of £100,000 per annum; and

(c)   the amount of £150,000 per annum from the profits of the note issue department of the Commonwealth Bank.

To furnish additional funds for the purposes of the Mortgage Bank department it is proposed that -

(a)   the Commonwealth Bank may make advances subject to the amount outstanding at any time not exceeding £1,000,000;

(b)   the Commonwealth Savings Bank may make advances from its investible funds as the board may determine; and

(c)   the Treasurer may raise loans and lend such moneysto the Mortgage Bank at the effective rate of interest payable by the Commonwealth on such loans.

The Mortgage Bank department may only lend to persons engaged in farming, agricultural, horticultural, pastoral or grazing operations or in such other forms of primary production as the bank thinks fit. The loans shall be made upon the security of a mortgage on an estate or interest in land as follows: -

(a)   An estate in fee simple;

(b)   Any estate or interest in land held under any State Act relating to Crown lands; or

(c)   Any estate or interest in land held from the Crown or the administration in any territory being part of the Commonwealth.

A loan made by the Mortgage Bank shall be upon first mortgage only. Except to the amount that money lent is used to pay off an existing loan, the money shall be used only for the purpose for which it was lent, that is, for use in connexion with primary production carried on by the borrower. Where a borrower misapplies money lent to him by the Mortgage Bank, provision is made for the money lent to become due and payable on demand. By this means it is hoped to prevent the misuse of any moneys made available through the bank. The mortgagor will also be required to obtain the bank's consent in writing before further mortgaging or charging his estate or interest in the property mortgaged.

It is proposed that loans shall be made for periods of from three to 35 years, and that the bank shall fix the terms and conditions of such loans. Where loans are for long periods, it is possible that a condition may be included in the mortgage deed for amortization payments. Loans through the Mortgage Bank are not intended to provide working capital, as it is considered that ample provision already exists for short-term advances. Provision is made in the bill that loans shall not exceed 60 per cent. of the value of the property, or £4,000, whichever is the less.

It is not practicable to fix for all time the rate of interest at which money may be advanced by the department, and consequently, rates willbe left to the bank to determine. The Government hopes, however, that it will be possible for the bank to make loans at about 4 per cent. per annum, plus suitable amortization payments where applicable. Such a rate would be an improvement on the average rate at present charged by lenders on first class mortgages, and it is anticipated that the lower rate charged by the Mortgage Bank department will have a general tendency to reduce the mortgage interest charges made by other institutions and private lenders.

As the Mortgage Bank will not be run primarily for profit, it is not expected that any appreciable amount of profit will be earned. Provision has been made in the bill for all profits to be credited to a reserve fund in the mortgage bank department. Moneys in this fund will be available only for the purposes of the department.

As the Commonwealth Bank will incur certain overhead expenses in the management of the Mortgage Bank department, and possibly receive moneys that may be properly allotted to that department, the bill provides for an allocation of such portion of the general receipts and expenditure of the bank as the board considers is referable to the department.

Provision is also made for investment of any surplus funds, although it is expected that investible surplus funds will be very small at any one time. In fact, the probability is that the depart ment will usually have some advance on daily balance from the general bank.

As it will inevitably take the Commonwealth Bank some time to complete its organization of the department, it is proposed that the act, if passed, shall come into operation only when proclaimed.

In view of the many amendments that have been made in the Commonwealth Bank Act from time to time, and the consequent difficulties in connexion with the numbering of sections, as will be noticed in the section numbers in this bill, steps have been taken for the renumbering of the sections of the act.

No specific provision has been made for advances to co-operative societies, nor for ordinary home building, the reason being that under the reconstruction plan, housing will be undertaken as part of a much bigger scheme.

The general principles of this measure have been approved by all parties in this House, so that any differences of opinion will be in regard to detail only. The Government is prepared, if honorable members so desire, to refer the bill to a joint committee representing all parties, in the hope that the combined wisdom of honorable members will produce a satisfactory measure.

Debate (on motion by Mr. Fadden) adjourned.

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