BANK OF NEW ZEALAND.

Auckland Star, Volume LXIV, Issue 150, 28 June 1933, Page 4

BANK OF NEW ZEALAND.

. SEMI-STATE INSTITUTION. PAYS HANDSOME DIVIDENDS. () ' SOURCE OF NATION"AL STRENGTH. 0 0 In view of the proposals made by the 0j Government for the establishment of a 0 Central Reserve Bank, and the very conq siderable interest now taken in the subject of currency reform, the position occupied by the Bank of Now Zealand becomes a subject of paramount importqi ance. At the outset the actual ownership ! of the bank may well be stressed. Ine present position Irom the point of capita! subscribed and paid up is as follows: — 0 a; Four per cent stock guaranteed by New Zealand Government . 520,05S Pref. A shares, N.Z. Govt 500,000 C long-term mortgage (N.Z. G Govt.) 234.375 D long-term mortgage .'. 4(i;;,750 I) Pref. B shares (N.Z. Govt.) ... 1.375.000 Ordinary shares ;; 7DO 000 3 £ 0,858.113 This shows that of £6,5,j8,113 capital £2.039,303 is held by the people's n representatives. I! A block vote such as the State possesses would be quite sufficient to I win tiie day in any contest between the | two classes of shareholders. Actually there is no possibility of such a voting duel , taking place, for the simple reason tha 4 5 the State, despite its large holding of j shares, does not possess the right to exeri cise a single vote. However, there would S seem to bu little likelihood of the bank J adopting a policy detrimental to the Government, seeing that out of six directors four are appointed direct by the 5 Government. It needs only to be added, J while emphasising the State's predominant interest, that the late Minister of ; Finance, the Hon. Downie Stewart, stated J as a matter of Government policy—no interference with the management. However, another Minister of Finance might take a different view, in which case the advocates of a State bank might be ? satisfied. ! Meanwhile the community as a whole may be congratulated that their chief financial concern has concluded another ) year of slump conditions with satisfactory remits. Net profits, though well , below those earned in normal years, are 5 slightly above those recorded a year ago. Profit and Loss Account. 5 Net pro/its with total dividends paid J and additions to reserves in late yours ' have been as follows: — 1 Additions ) . 'o » Profits. Divirloiuls. Reserves. J In '-'G 912.1 GO f.C.2?302 247JJS0 847.071 771,814 200,000 , 28 841.878 703.344 124.175 ' 1020 012.054 814 803 *>75 000 ) 948,534 817.90S 12.V000 . 815.813 817.008 25 000 1932 587.023 817,908 _ ' 594,270 044,530 It will be seen that net profits fall considerably short of the amount necessary to . pay the 11 3-3 per cent distribution to . shareholders which had been allocated in : recent years, and the directors have wisely : decided to lower the rate to 11%. A year ) I ago it seemed that the board had held on too long to the old rate, as a big dip had ' to be made into reserves to pay the J amount. Even at (he reduced rate now sanctioned the old balance in profit and i'MWII have to he called upon for I . t} ''C noted also that no i additions to reserves have been made |l during the last two years, and in 1931 the provision for this account was cut down ] drastically to £2,">.000. Just how revenue and expenditure have come and gone, roinr-nred with previous years, is shown in ;!»• following tables The first shows gvo;;s income, expenses, and taxes: — Gross income. Expenses. Taxes *£ £ x 1924 2,0-11,806 502,590 380,001 19--> 1,775,323 507,490 307,3-13 1920 1,9,88,309 000,008 354 SBl 1,074,302 011.270 350,740 1028 1,800,380 030,453 323,339 1929 1.010.000 048,581 333.500 2,013,520 084.745 359.048 • ••1 2,000,412 (100,515 445,884 1;!:4 1,770.08(5 059,029 502,835 !900 1,740,339 644,104 450.075 * Loss provision for contingencies. Contrary to the opinion held by some people, even a bank cannot prosper when the community within which it operates is passing through hard times. Under conditions that have ruled over the past couple of years commodity prices have been low, and the amount necessary to I finance mercantile stocks has been lessened accordingly. Moreover, many accounts have becomo unprofitable, and have ceased to provide a safe outlet for credit. Hie net result of these factors can be understood when it is mentioned that the average weekly debits against customers for tiie banks trading in Now Zealand during May, 1930, were nearly ii 18,000,000; tor last Mav, they were under £11.000,000. Apart from the volume of money circulated in ordinary trading, the relation between the interest paid on deposits and that charged on overdrafts necessarily affects the profit and loss account. With half the year gone, namely on September 1, the New Zealand trading banks reduced their charges on " best" accounts to 0 per cent, while holding large amounts on fixed deposit upon which no corresponding reduction could be made. 1 lie business of the banks is to accept deposits and lend the money out at a profit. It is all worked on a percentage basis, and the more loan money the bank can place satisfactorily the bigger its profits. The figures just quoted show how seriously its opportunities for profit have been curtailed. Moreover, as with all trading institutions, the question of bad debts has to be reckoned with. Bankers are notoriously careful, insisting upon con- ] servatively valued securities and personal ' guarantees, but, despite their utmost care, ■ some losses have been inevitable as the \ result of the tremendous slump in values, ! and these go to the debit of the profit and ( loss account. At the annual meeting Sir < Geo. Elliot made the statement that during the present financial slump the banks and other lending institutions in - New Zealand had written off bad debts i aggregating millions of pounds. When , these factors are given due consideration, I as well as the heavy toll taken by the ' Government in the form of taxation, it will i bp realised that the results of the past j year have been very satisfactory. ; Where tha State Comes In. During the past three years the follow- ' ing amounts have been paid by the bank 1 to the State b.v way of dividends, interest, rates and taxes:— 1930-31. 1931-32. 1932-33. £ £ f Dividends and Interest 200.512 200,512 203.907 Rates and taxes .. 445.884 502,83-1 480.075 / __ _ .... 712,390 709,34G 750,552 Thus in three years more than c £2,000,000 of the bank's earnings has found its way into the Consolidated Fund. These are figures which merit special I consideration from the advocates of a S State or a Central Reserve Bank. Expenses Cut Down. The steady growth of expenditure from J 1924 to 1931 received a sharp check last '' year, when a reduction of £37,000 was recorded. For the latest period a further drop of £15,000 is shown. It is not clear how this substantial reduction of £52,000 in two years has been achieved. It is not a habit of bank n directors to furnish much, if any, informa- J tion under this head, which appears as J " General expenses, including rent, stationery, telegrams, postages, travelling, f repairs to premises, etc." The " etc." may " be accepted as thoroughly comprehensive, J. embracing all manner of writiugs-oif, which ' become the source in prosperous years of the secret reserves which constitute aU definite part of the strength of most of our trailing banks. i 5

111 his address to shareholders, the chair- ■ man, Mr. R. W. Gibbs, made no reference to expenses, except in regard to rates and taxes. The following details are of interest: — 1931. 1932. 1933. £ £ £ Salaries and allowances at' head office. branches and agencies 505,959 501,5C0 514,559 Directors' remuneration, including London Board .. 9,500 9,090 9,70S General expenses . 174,00S 142.230 110.445 Audit 3,075 2,890 3.153 2 Number of branches and agencies 237 235 227 From the. foregoing it will be seen that while the bulk of the trailing community has had to face a lower level of wages the 1 amount set aside for salaries and directors [ remuneration of the country's national bank has increased, although the number of branches and agencies has been reduced. it should be added that there has been no increase in the last twelve months of ' the salaries of the more highly paid officers, s any increments having been confined to those employed 011 a scale rate of pay. The Balance-sliect. Balance-sheet figures over a period of years have been as follow: — LIABILITIES, j Notes. Bills. Deposits. 1 1924 .. 4.072.101 3.205,519 30,501,719 1 1925 .. 4,108,844 3,015.009 30,079,282 1920 .. 4,444,392 3.0 18,285 31,121,288 1 1927 .. 3,705.594 3.970.221 29,004,025 s 192S .. 3,797.080 3,954,878 30,339,033 1929 . . 4,290,793 4,280,029 33,939,051 1930 . . 3,751,949 4,850,307 33,897,009 ? 1931 .. 3,079,957 4,331,328 32,324,085 > 1932 .. 4,002,702 3,042,948 31,505,843 - 1933 • . 4,338, i 47 0,t)29,ui8 *j2,073,2*j9 j ASSETS, u Liquid. Advances. Premises. ,• 1924 .. 20,303,705 20,128,292 352,474 1 1925 . . 20,070,313 20,014,285 437,700 " 1920 .. 20,010,850 22,002,090 484,103 1 1927 .. 24,271,312 23,924,980 520,877 1 1!)L>8 .. 20,508,235 22,748,219 533,597 ; 1929 .. 30,930,478 22,841,453 549,383 . 1930 .. 24,917,001 29,109,588 579,871 ■v 1931 . . 21,332,398 28,400,213 000,759 ' 1932 .. 24,199,750 25,053,321 022,825 ' 1033 .. 25,712,572 25,079,808 032,771 f On the liabilities s;de notes 111 circula--1 tion are unusually high at over .£4,300,000. > Deposits are up nearly £ 1,000,000. The - balance-sheet does not differentiate between fixed and free deposits, but : at the annual meeting the ehair--1 man mentioned that the greater portion were lixed. The expansion in deposits, said Mr. ' Cibbs, could be attributed to the lack of ■ satisfactory openings for saie and prolu- . able investment. [ The proportion of advances made to > deposits held was approximately 70.09 per cent, compared with 81.2(5 per cent at the same period last year. These figures are unusually low. However, it is in the June quarter that the bank's assistance is ; called upon most freely, and the percent--1 age in this fluctuating item is probably considerably higher at time of writing. In considering the general position of the bank the following table showing the variation in capital, the steady growth of | reserves, and the relation of assets to 1 liabilities will be of interest: — 1 Percentages to 1 public liabilities 1 of Paid Liquid Total Capital. Reserves. Assets. Assets. £ £ p.c. p.c. 1924 . 5.n29,98S 2.831,514 07.1 120.3 1925 . 5,029,988 3.055,299 07.9 122.4 1920 . 0,154,988 3.390,378 0.0,5 123.9 1927 . 0.529,180 3,009.050 02.4 120.5 1928 . 0,771,198 3,732,525 00.9 127.1 1929 . 0.858,114 4.042,591 72.41 125.51 1930 . 0.858,114 4.173,157 57.45 123.31 19.31 . 14 4.201,001 51.73 125.4 1932 . 0,85.-,ii4 3,970,050 59.23 120.50 1933 . 0,858,114 3,919,795 01.95 120.75 Reserves arc down as a result of the extra payment made in the shape of dividends. However, the liquid position has again been strengthened by the reduction in advances. Millions in London. Of the liquid assets it is worth noting | that the money held at call and short notice in London has shown a sharp in-" 1 crease. The figures for the past eight years are as follow:— £ £ 1920 6.250.000 1930 4,215,814 1927 4,300,000 1931 4,170,785 1928 7,119,084 1932 4,314,318 1029 9,097,108 1933 0,200,397 This latest movement is scarcely a matter for congratulation. Funds have accumulated 111 London, and are being utilised there earning very low interest rates, presumably because the management cannot find a satisfactory outlet for the money in this Dominion. Obviously, too, this money is available for the purchase of exchange that, with our restricted demand for imports, is not required. The natural rate for exchange, therefore, would normally be low, and the difference has to be made up by the Government, which artificially raised the rate to 25 per cent against the advice of the bankers. At balancing date the bank held assets totalling £52,702.004. against outside liabilities of £41,688,51?, and, as already indicated, an unusually large proportion of ! assets are liquid, and could be made quickly available if occasion required. The strength of the bank's position is impressive, and should be a source of comfort and confidence to these interested in the financial welfare of the country.