SHARES HIGHLY RECOMMENDED

NZ Truth, Issue 1293, 18 September 1930, Page 17

SHARES HIGHLY RECOMMENDED

Bank of Australasia Accounts Show Strength and Steady Progress In Difficult Times SOUND AND SATISFACTORY POSITION Displaying strength and conservative progress, tfte position of that important and old-estab-lished banking concern, the Bank of Australasia, as disclosed by its 96th annual accounts, is sound and satisfactory.

It is making steady but not spectacular progress, and its accounts show traces of strained times through whjch we are passing, and evidence of tiie desire to accommodate customers m difficult times up to the margin of prudence. Net profit has increased slowly "during the past five years. ,

nOR last year the directors decided C to maintain the dividend of 14 per cent, that has become normal for the bank, but it was only just managed. Since admitted net profit on the year amounted to £677,183, of' which dividend absorbed £630,000., only £47,183 of disclosed .profit was car- } ried forward. Nothing was written off premises, but as this item stands at the almost nominal figure of £278,3/3 it is obviously so heavily written down that the point is of no importance. The position of the bank is verystrong. Its capital now stands at four arid a-half millions, steiiing, having! been .raised by half a million m 1928. At this time premiums {-.mounting- to £600,000 were also received iv connection with the share issue, bringing disclosed reserves from £3,S'souuo m 1927 to £4,450,000 m 1928. Disclosed reserve now stands at £4.475,000,' capital at four and a-half millions, profit and loss carry over at £47,183, while m premises at £278.373 - a handsome secret reserve is embodied, and the same' may also, m all probabilitj', be said of the item bilis payable and contingencies at £4,569,795. It is essential that a bank should be stronger than it looks, and this bank is ho exception to the rule; it is strong m both the disclosed and the undisclosed sense. . A bank differs, from most commercial concerns m that its customers are to a -large, extent its creditors and not its debtors, and it provides the currency on which economic life depends, 'fts stability- is therefore of the greatest importance,. No bank uses its ostensible reserve for the purpose of adjusting business fluctuations. To do- so would, impair its credit. .'lt always keeps a lot tucked away under the heading of contingencies,* which are m effect the true operative reserves on which it adjusts its business fluctuations. It is the duty of a bank to keep heavy secret reserves, ancl the Australasia's policy m this respect is quite above reproach, and m harmony with the best banking practice. The profit situation is satisfactory, as below: — ' Gross Ex-- Taxa- Net profit peruses tion profit •£ £ £ £ 1925 .. 1,485,143 564,636 287,952 632,555 .19^6 .. 1,5115,376 584,400 279,354 652,622 1927 . . 1.572,735 632,563 286,112 654,060 1928 .. 1,648,893 647,883 325, 51S 675,192 1929 .. 1,668,334 670,769 320,383 677.153 It is thus seen that gross and net profit are slowly increasing, expenses roughly maintaining a stable ratio, and taxation tending to increase. The profit position has supported the following allocations: — Dividend, £: 1925, £520,000; 1926. £560,000; 1927, £560,000; 1928, £595,---000: 1929, £630,000. » " Dividend, per cent.: 1925, 13; 1926, : 14; 1927, 14; 1928, 14; 1929, 14. Tb reserve: 1925, £60,000; 1926, ] £50,000; 1927, £40,000; 1928,—; 1929, , £25,000. . i ■Written off: 1925, £50.000; 1926, 1 £40,000; 1927, £50,000; 1925,' £SO,000; ' 1929, — . In 1928 reserves were raised by 1 £600,000,* being the amount of pre- 1

miums received on the issue of new share capital. , * The ratio of disclosed net profit to capital and reserves combined for 1929 was only 7.4 per cent. There •is nothing spectacular about this. Critics of banking profits overlook the fact that shareholders' funds consist not only of nominal capital, but of reserves, which are really additional (funds of the proprietors' retained m the business as working, capital, on which they can quite properly expect a return. The. disclosed earnings m this case as -a percentage of total proprietors' funds employed cannot be regarded as excessive. The ratio of net profit to actual capital was 15 per cent, for last year, as against 15.8 per cent, for 1928, 16.3 per cent, for 1927, and the same for 1926, so that earning power has been falling slightly. The composition of the assets of the bank reflects m some degree the economic trend of the time. Taking the last three years the position is as follows: — * , ( Liquifis (cash and call loans) British. Aust. and N.Z. Govt: securities and Bills receivable and remittances Aj:iva7ices . . . . . . . . ..... Othejr . '.'./ . . . . . . . . . . Total assets . . . . • . . . . For 1929 it is thus seen that advances have increased by £2,750,646; while, as will be seen later, deposits^ are up by. only- & 538,469 on the previous year. Advances are 99.7 per cent, of deposits for last year, as against 93.1 per cent, for the previoiis year, pointing to the financial stringency and the need for extra accommodation. In the circumstances it is creditable that strictly liquid items are down hy only £ 272, 544 on the previous year, but Government securities are down by £1,400,188, -showing that the bank has had to sell securities to meet the demands of its customers. The position of the assets is therefore somewhat less liquid than last year, since- advances have increased and Government securities have declined. »

It is by the way , incorrect to class Government 'securities as liquid m a criticism of banking accounts. The only truly liquid assets are cash m hand and £t a central bank, and while short loans m the London market can also be allowed to be thus included, long-term securities should not be regarded as. fully liquid, and are not so regarded by the banks themselves. Experience shows that^in time of abnormal difficulty the market for" even, good securities may be temporarily suspended by the closing of the Stock Exchange or other abnormal circumstances. In any* case this bank is m a highly lfquid position. The ratio of cash and loans at short call to notes issued and demand' deposits was approximately 60 per cent, last year, a satisfactory figure. Acceptance liabilities on behalf of customers appears only m 1929, when the bank endorsed its clients' bills for a sum of £452,733. Liabilities to the public have moved as follows m the last three years: 9.x' X : — — — -£ £ £ 1927 1928 ' 1929 6,755,234 . 7,505,811 7,212,967 3.664,449 5,082,083 3,681,895 4,355,725 3,307,544 3,362,670 29,689,660 31,564,314 34,314,960 44,594;560 47.618.92S 49,323,597 3 1927 1928 1929 £ £ £ Note issue 427,542 428,621 434,328 Deposits 31,478,756 33,876,329 34,147,798 Bills payable, etc. 4,418,994 3,909,217 4,569,795 The bank displays strength and conservative progress. It may not be possible to maintain r the existing rate of dividend next year, and prospective investors must take this into consideration, since m buying bank shares an important factor is the prospect of capital appreciation, either through sustained or increased dividends, or capitalisation of profits. As a holding investment the shares are highly recommended.