BANK OF N.Z.

Auckland Star, Volume LXIV, Issue 145, 21 June 1934, Page 15

BANK OF N.Z.

STILL GOOD DIVIDENDS.

QUESTION OF OWNERSHIP,

WHAT ARE THE PROSPECTS?

The average New Zealander, if asked his opinion of the Bank of New Zealand would probably shrug his shoulders and reply: ''Oh, it's like all the banks. Has plenty of money that it won't let out when a fellow really needs it."

But let the question be put to the New Zealander when travelling in some foreign country, and with enthusiastic patriotism he will brag of the bank as a national institution which has all the advantages of a State bank without tho drawbacks ascribed to Socialistic enterprises. To a degree this attitude is fully justified. First as to ownership. Since that historic time when the late Richard Seddon came to the rescue of the bank with a State guarantee the Government of the day has always been the principal shareholder, with a predominant position on the directorate, in the country's leading financial institution. The present position from the point of capital subscribed and paid up is as follows■ 4 per cent stock guaranteed by New Zealand Government .... 529,05S Pref. A. shares, N.Z. Government 500,000 C. long-term mortgage (N.Z. Government) 234 370' D. long-term mortgage 465'750 Pref. B shares (N.Z. Govt.) 1,375|000 Ordinary shares 3,750,000 £ 6,555,113 This shows that of £6,858,113 capital £2,639,363 is held by the people's representatives. Apart from the Government holding much the bigger proportion of the ordinary shares are held in the Dominion. It is therefore essentially a national concern, and its operations are most intimately connected with the fortunes of the Dominion. Though the Government has special representation on the board of directors, there has always been a tacit understanding, which appeal's to have been adhered to, that its administration must be entirely free from political interference. Profit and Loss Account. Net profits, with total dividends paid and additions to reserves in late years, have been as follows:—

Contrary to the opinions held' by some' people, even a bank cannot prosper when the community within which it operated is passing through-hard times.'lt will be n6ted that net profits, already well down from normal, are still lower for the latest term, and ai-e, indeed, lees than they have been for many a long year. One might have expected that the vastly improved returns to the Dominion from wool and meat would have had a favourable reaction on the bank's operations, but evidently other adverse factors have more than offset the advantage referred • to. fExtremely low interest rates are not profitable from the bank's point of view, and in a downward trend, such, as has existed over the last twelve months, it is difficult to ensure a satisfactory ratio between the rates charged to borrowers and those given to lenders.

Moreover, the insistent call to the business community for.more confidence still falls on deaf ears. Business people are afraid to launch out. They cannot see a profitable result to any extension of their activities while taxation and other Government restrictions, uncertain prospects in rejrard to exchange, tariffs and other material factors, continue to hamper their operations. Wherefore the banks' coffers are overflowing with money they cannot lend out. As lending is the bank's chief occupation, the effect on profits is easily understood.

Dividends from Reserves. Despite the serious inroads into profits, the directors have' authorised dividends which, in the aggregate, are slightly above the disclosed net earnings. This is the third year in which past .years' savings .have been called upon for the maintenance of dividend distributions.. No additions have been made to reserves. At Friday's annual meeting the chairman of directors, Sir Harold Bcauchamp, rightly pointed out that the dividend of 10' per cent to ordinary shareholders had been earned on capital plus reserves. On the funds employed in the business, which includes nearly £4,000,000 of reserves', the return is by no means excessive. Income and Expenses. Just how revenue and expenditure have come and gone, compared with previous years, is shown in the following tables. The first shows gross income, expenses and taxes: —

•Less provision for contingencies. This tabic shows gross income to have been lower than for any twelve months during the past decade. Expenses are higher by £8000, but this has been more than offset by a substantial decrease in rates and taxes, probably due to the amended method of assessing taxation introduced last year. Question of Salaries. The following details are of interest:— 1932. 1933. 1934. £ £ £ Salaries and allowances at head office, brai.clies and agencies ... 504,800 514,859 515,u36 Directors' r cmun eratlon, including London Board 9,696 9,708 9.500 ° pense r s a . . C . X . 142,236 116.445 120,698 Audit 2,596 3,183 3,130 X umber of branches and f( agencies .... 230 From the foregoing it will be seen that while the bulk of the trading community lias had to retain a lower leyel of wages, the amount set aside for salaries and directors' remuneration of the country fl national bank has increased, although the number of branches and agencies has been reduced. . , . , i It should be added, that there lias .been no increase in the last two years of the salaries of the more highly paid officers, any increments having been confined to those employed on a scale rate of pay. Where the State Comes In. During the past three years the follow'ing amounts have been paid by the bank to the State by way of dividends, interest ratej and taxes:—

1931-32. 1932-33. 1933-34. £ i £ Dividends and 183,261. interest i .o'cj i<3<: fifi ioo -.in ltates and taxes . ..02.5./.4 450,6<0 £769,316 £750,582 £508,771 Thus in three years more than £2.000,000 of the bank's earnings has found its way into the Consolidated Fund.

Tho Balance-sheet. Balance-sheet figures over a period of years have been as follows: — LIABILITIES.

On the liabilities side the most noticeable feature is a further substantial increase ,iu deposits, and in his annual statement, the chairman of directors mentioned that the greater part of the increase was in fixed deposits and on these, of course, interest has to be paid. The proportion of advances made to deposits held was 65.17 compared with 7(3.09 the previous year and 81.26 in. 1932. The latest figures are extraordinarily low. However, it is in the June quarter that the bank's assistance is called upon most freely and the percentage in this fluctuating item is probably considerably higher at time of writing.

Most Funds Are Liquid. In considering the general position of the bank, the following table, showing the variation in capital, the steady growth of rescrvea and the relation of assets to liabilities, will bo of interest: —

Reserves are slightly lower 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 decrease. Tho figures for the past nine years are as follow:— £ £ 1926 .. 6,250,000 1930 .. 4,215,814 1927 .. 4,366,000 1931 .. 4,170,785 192S .. 7.110.054 1932 .. 4,314,318 1929 . . 9,097,16S 1933 .. 6,266,397 1934 .. 4,163,347 The reduction in call funds is partly offset by an increase in bills receivable in London and in transit. In any case, a reduction can be readily accounted for. With money at a record low level in the world's metropolis it has been much better business to lend a few more millions to the New Zealand and Australian Governments.

At balancing date the bank held assets totalling over £54,000,000, of which nearly £30,000.000 were in liquid form and could lie made quickly available if occasion required. The bank's position is impressive and should be a source of confidence to those interested in the financial welfare oi" the country. What of the Future? What will be the effect of the Reserve Bank operations on the Bank of Now Zealand ? This is the question that naturally qomes to;the mind of the investing public and reference to this subject was one of the-most interesting features in the chairman's speech. Many will have been surpifeccl at his statement that the loss of the. Government accounts will . not have any material effect on the bank's profits.

Losses will be sustained in compulsory non-interest bearing deposits that have to b» lodged with the Reserve Bank, but as against this there will be a saving on the note circulation.

The general business of the community will remain with the trading banks and it is virtually certain that the Government will still have to rely upon them for some of its financial requirements. The outlook was well summarised by Mr. Wil-liam-Watson at the annual meeting, when he said: —

"I consider that with capable directors and continuation of a staff of officers such as the bank has now, it will hold its own through good times and bad as it has done in the past 40 years."

The Reserve Bank starts with a capital of £1,500,000; the Bank of New Zealand has, with capital and reserves combined, over £10,000,000. A bank official busy with the rush of Saturday's business was asked his view of the Reserve Bank. The reply came nonchalantly: "Oh! We're not worrying."

That the market has no misgivings as to what the future holds is indicated by the fact that the £1 shares are valued to-day at £2 9/.

Additions Net to rrofits. Dividends. Reserves. £ £ £ 1026 012,100 062,302 247,680 1027 847,071 771,814 200,000 1028 .... S41.S7S 703,344 124,175 1029 912,054 S14.S93 275,000 1030 .... 048,534 S17,908 125,000 1931 845,813 817,96S 23,000 1932 .... 587,023 817,068 — 1933 .... 594,270 644,530 — 1934 573,032 574,216 —

Gross income. Expenses. Taxes. *£ £ £ 1025 .. 1,775,323 567,400 367,343 1026 .. 1,088,300 600,068 . 354,881 1027 .. 1.074.302 611,270 350,740 1028 .. 1,800,380 630,453 323,330 1020 .. 1,016,600 648,581 333,866 1030 .. 2,013,526 084,745 359,048 1031 .. 2,000,412 006,515 445,884 1032 .. 1,770,086 650,620 502,835 1033 .. 1,746,330 044,104 480,675 1034 . . 1,560,007 652,105 323,511

Notes. Bills. Deposits. £ £ - £ 1925 4,168,844 .1,615,005) 30,070,282 1026 4,444..7.12 3,(i4S,285 3],121,288 1027 3,765,504 3,070,221 20,664,025 1028 3,707,080 3,054,S7S 30,330,033 1020 4,200,703 4,286,62!) 33,030.651 1030 3,754,040 4,8o(i.367 33,807,600 1031 3,670,957 4,331,328 32,324,685 1032 4,062,762 3,642,04S 31,565,843 1033 4,338,747 3,520,578 32,573,230 1034 4,250,140 3,355,784 34,32S,004 ASSETS. Liquid. Advances. Premises. ' . £ £ £ 1025 26,670,313 20,614,285 437,760 1020 26,616,850 22,662,1506 484,103 1027 24,271,312 23,024,080 520,877 1028 26,508,235 22,748,211) 533,507 1020 30,036,478 22,841,453 040,383 1030 24,017,661 20,100,588 570,871 1031 21,332,308 28,400,213 600,750 1032 24,100,751) 25,653,321 622,825 1033 25,712,572 25,070,SOS 632,771 1034 ..... 20,071,471 22,370,341 6(37,400

Percentages to liuiilie liabilities of Paid I>iquiil Total Capital. Reserves. Assets. Assets. £ £ p.c. p.e. 1925 . 5.020.9SS 3.088,209 07.0 322.4 1020 . 0,154,OSS 3.300.37S 0(5.5 123.0 1927 . 0,520,180 3,009,650 02.4 120.5 192S . 6.771.19S 3,732,525 00.9 127.1 1929 . 0,S5S,114 4,042,591 72.41 125,51 1030 . 0,85S,114 4,173,157 57.45 123.31 1031 . 0.858,114 4,201,001 51.73 125.4 1032 . 6,S58,114 3,070,050 59.23 120.50 1033 . 0,858.114 3,010,795 01.95 120.75 1034 . 6,858,114 3.01S,609 OO.G1 125.77