THE 'GROWTH IN BANKING LOANS

BY ARTHUR W. KIDDY.

THE past two years have been characterized by certain features which at first sight do not appear to harmonize with the conditions suggested by banking statistics. During the greater part of this period there has been per- sistent depression in the key industries of this country, and those conditions have been more or less faithfully reflected in the 'figures of unemployment, the traffic returns of our railways and • the monthly figures of our Foreign Trade Returns, though in the latter case lower prices as well as a smaller turnover have admittedly been a contributing factor.

DEPOSITS HIGHER.

When, however, we turn to the banking results for the same period it is difficult to find those conditions at all fully reflected. Profits have been well maintained, and while during last year there was certainly a downward tendency in deposits, there is now an upward tendency once again. It. is the same too when we turn to some of the salient figures of the balance-sheets, and in accordance with usual customs in these Banking and Financial Supplements of the Spectator I am appending tables which show at a glance the general movements of banking resources

DEPOSITS.

June 30th, Dec. 31st, 1925. 1925. June 306, 1926.

Bank of Liverpool and Martins .. 58,050,861 59,819,627 59,328,980 Barclays Bank .. 298,947,270 306,259,816

304,247,461.

Coutts and Co. .. 17,717,444 17,083,565 16,669,435" Glyn, Mills and Co. .. 27,838,489 31,026,455 26,810,718 Lloyds Bank 338,371,355 337,178,515 336,631,359 Midland Bank ..

National Provincial 348,359,435 348,682,134 349,460,875 •

254,290,570 252,737,817 255,260,105 National Bank .. 38,340,892 37,371,727

36,962,819-

Westminster Bank .. 269,015,340 271,379,667 270,286,855' Williams Deacon's

Bank • •

32,944,598 32,787,663 31,427,121

•

£1,683,876,254 £1,694,326,986 £1,687,085,728

No attention need be paid to the fact that deposits show a small decline compared with the previous Decem- ber, for that is customary ; indeed, whereas on the present occasion the decline is about £7,000,000 it was £23,000,000 a year ago. What is more to the point is' that compared with a year ago there is a rise of over £8,000,000, whereas a year ago a comparison with June, 1924, showed a decline of £24,000,000. All the same it may be well to remember that as compared with' two years ago there is still a moderate decline to note.

LIQUID RESOURCES. -- As regards the cash in hand at the Bank and at "short notice" there is little to call for cOninient. On the whole the proportion- of- liquid resources is a little larger, for, as compared With a year ago, the rise in the. during the past three half-years. cash is about £7,000,000; whereas deposits only advanced by £3,200,000.

LOANS RISE SHARPLY.

It is -when_ thefigures of Loans and, Advantes_ are examined:that: attention -is 'particularly. airested.? In spite of - dullness -in key inlluatriei'and imPiired-foreign trade the figures make the following showing :— LOANS AND ADVANCES.

June 30th, _ 1925. _ Dec. 31st, 1925. June 30th, 1926.

Bank of Liverpool and .. 37,651,175 35,413,244 34,601,139 Barclays Bank .. 149,603,033 - 163,028485 155,566,604 :.:outts and Co. .. 7,597,629 8,195,791 8,133,090 Glyn, Mills and Co. .. 9,626,585 9,230,065 9,638,703 Lloyds Bank " .. 176,688,694 183,330,726 189,735,983 Midland Bank .. 198,027,998 196,747,548 198,717,420 National Provincial

Bank .. .. 132,823,115 133,617,259 136,281,499 National Bank .. 16,559,963 16,321,759 .15,799,081 Westminster Bank .. 128,678,661 126,516,051 132,168,073 Williams Deacon's-

Bank .. .. 20,495,059 18,95,020 19,211,025

£877,751,912 £880,695,948 £899,852,624

It will be seen that since last December there is a rise of £19,000,000, and compared with a year ago the increase is £22,000,000. Moreover, the figures are even more striking compared with two years ago, the expansion for that period being as much as £81,000,000 I Incidentally it is worth noting, perhaps, that the rise in loans is usually much greater in the first than in the second half of the year, thus suggesting that our heavy income and super-tax burden may occasion a good deal of temporary borrowing from banks to pay it.

IS TRADE MORE ACTIVE ?' • Now the interesting point- which arises is how. far we :an regard this rise in bankers' loans as an assurance that, :iespite coal stoppages-and depressed foreign trade •there is still a considerable industrial expansion. accounting for the growth in loans. Is there reason to fear, in fact, that it is due to loans being needed to keep various industrial concerns on their feet, or is it due to new and profitable business.?. Mainly, I. think, to the latter,_and we know that Seine time since one of one leading bankers explained that an analysis of the loans of his institution showed that a very small proportion indeed could be attributed to financial " assistance " during trade de- pression. Nevertheless, and bearing in mind the smaller. Foreign Trade-figures, I think Were- can -be no doubt at' all that it is to internal trade activities and not to exports' that any increase in banking. loans must he attributed ;• and in that connexion, of course, the effect of bad trade and unemployment upon. consuming. power is modified by the huge.sums disbursed by. the Government in Unem-: ployment benefits. Nor should it be overlooked that there has been a good deal of activity and prosperity in new industries which have probably required -a good deal in the may of banking accommodation. There is little doubt, however, that increased activity. on the Stock Exchange has played an important part in the increase in banking. loans, and It. may be doubted' whether this is an altogether desirable development at the, present juncture. . .

SALES OF INVESTMENTS.

. That there is a-good deal that is abnormal in the CAWS of --banking loan expansion is also apparent from the move- Ments which have occurred in the banks' holdings of invest- ments. We have already seen that these loans have increased over a period of two years by £81,000,000, and under ordinary conditions it would not have been surprising if • deposits had risen to the same extent. So far from that being the case, there has actually been a decline of £'25,000,000. The reason, however, is clearly to be, found in the fact that- there has been a. fall in bankers' investments during the same period of no less than 411,000,000._ Payment, for. these securities by. banking depositors has,of course, depleted: deposits,' but the effect of such depletion has been more than offset by the reflex action upon deposits of the :expansion in bankers' loans: Not the least remarkable has been the steadiness of all 4st-class investment stocks, notwithstanding these heavy, saies by- the joint stock banks. • - . . . _ _ .