WELLINGTON COMMENT.

Auckland Star, Volume LV, Issue 224, 20 September 1924, Page 6

WELLINGTON COMMENT.

BANKERS AND BANKING. THE PROPOSED LOAN. (From Our Special Correspondent.) WELLINGTON", __ptember 19. Banking affairs and bankers have been brought rather prominently before the people since the session opened, for quite a number of members of ParliaIment have indulged in criticism of tha banks. One member suggested that the increased profit of £15,000 shown by the National Bank of New Zealand was the result of the remission of taxation, while another member stated that bank profits were, something enormous and outrageous. Needless to say that these remarks emanated from Labour members of Parliament. That these critics are blissfully ignorant of the principles of banking goes without saying, for if thsy knew more they would have said less. It has been a traditional policy of banks to remain silent under criticism and to abstain from "writing to the papers," but the criticisms which have been levelled at the National Bank have been too much for the general manager of that institution, and in an interview with a newspaper reporter he castigates the critics very severely. The increased profit of £15,000 was earned during the year ended March 31, 1924, and was due to the fact that the bank had the use for the full period of the additional capital of £450,000, obtained by the issue in June, 1922, of 100,000 new shares of £4 10/ each, of which. £2 represented premium. The minimum overdraft rate of the banks is 6_ per cent and if this was earned on the

additional capital that would have made £29,250. It would have been very surprising indeed if with additional capital , of nearly half a million sterling, the bank did not earn a large profit. It would have been a very unfortunate thing for the Dominion for it would have indicated a sorry state of affairs in the country. To suggest that the increased profit was due to the remission of taxation was not merely unfair, but was stupid. Labour members have got the fool idea that they are very clever economists and know all about banking and finance. They belong to the "you can't tell mc" tribe. ■ It was pointed out by the general manager that the income tax paid in New Zealand by the, National Bank during the year amounted to £21,960 less than in the previous year, owing to the reduc tion of taxation, and the bank's average overdraft rate . was reduced by more than one-half of one per cent, which. on the average overdrafts for

the year amounted to more than £40,0-0. Furthermore over the same year staff salaries, allowances and annual bonus increased by £13,000. The Enormous Dividends. With Tespect to tbe large dividends it is pointed out that the bank paid 12 per cent dividend and 2 per cent bonus or a total of 14 per cent for the year on the paid up capital, but the criticsoverlooked the fact that £2,655,000 of shareholders' funds were employed in the business, and dividends paid only on £1,250.000 of paid up capital. The dividend distribution if spread over the whole amount of the capital employed is only equal to a little more than 6 per cent. Sound banking policy required the creation and maintenance of a substantial reserve, and almost invariably of a secret reserve fund. Every bank aims to become strong and therefore safe to the community. "As safe as the Bank of England" is not an uncommon saying and it is significant. New Zealand wants strong banks and no others! Fortunately, for us the sixbanks operating in New Zealand are solid, but that appears to be a crime according to some members of Parliament. The reserve fund of the National Bank has been built up out of premiums paid by shareholders on new shares, and the balance has come out of profits withheld from distribution in order to strengthen the resources" of the bank. Those who know the enormous strain put upon our banks during the slump of 1920-21, and how they stood up to it will always" be thankful that the banks were strong enough to face the situation.

Government and; Bank. The announcement that the Bank of New Zealand was to lend the Government £1,125,000 at o\ per cent to finance farmers affected toy the moratorium came as a surprise for "the facts were well guarded. Investors in Stock Exchange securities suspected something but were unable to forecast what was pending. Those who bought Bank of New Zealand shares overnight found themselves the next day richer by the extent of 3/ per share. The shareholders are not complaining at the new issue of shares, but there are others wondering to what extent political pressure was brought to bear on thp bank to find this money. It was stated some weeks ago that the New Zealand Government was issuing Treasury bills in London for a million and a-half and Mr. Massey stated that the bills would be repaid out of the loan to be issued in April next. Apparently these bills were not issued and the Bank of New Zealand was forced into finding the money. This loan which is at 5J per cent upsets the Government's policy of pegging down the interest rate to ."> per cent. Mortgagors must now pay 5J per cent on loans from the State and local bodies will also suffer. I .