BANK OF N.Z.

Auckland Star, Volume LXVI, Issue 139, 14 June 1935, Page 7

BANK OF N.Z.

CHAIRMAN'S REVIEW.

REPLY TO BANKS' CRITICS.

"NEW ZEALAND FORTUNATE."

(By Telegraph.—Own Correspondent.)

WELLINGTON, this day.

"Ordinary trade and the manufacturing industries have improved during the year, no doubt partly owing to more confidence as regards the exchange rate, and also to the favourable prices obtained for last season's wool," said Mr. William Watson, chairman of directors of the Bank of New Zealand, at the annual meeting to-day. "Assertions have been made in speeches, and in correspondence to the Press," he said, "that there k much idle money in the trading banks, and son.e persons have gone so far as to my that money deposited in banks was equivalent to its abstraction from general use. The expression of such ideas is, of course, quite an erroneous one and apt to be misleading. Taking our own bal-ance-sheet now before you, it will be seen that the whole funds of the bank, including deposits, arc put to- use, excepting the proportions of deposits we are bound by law to place in the Reserve Bank, and the money we hava to hold in hand against the exigences ot our business. Were it not eo, it would be difficult indeed to pay the salaries and other expenses of the bank, let alone any dividend to the proprietors. The principle of banking, like any other trade, is plain service to the public, and, in the case of deposits, to receive them at interest and for safe keeping.

Accumulation of Reserves. Banks as well as ordinary traders have been criticised in this Dominion for accumulating reserves out of profits, the deductions apparently being that beyond a narrow margin between the rates on deposits and advances, no profit should be made on the bank's own funds, that we should not fully employ our resources, or that we should pay all profits away," continued Mr. Watson. "Had such imprudent practices been universally adopted prior to the recent depression, not only would many trading establishments have been unable to continue paying their employees when trade was unprofitable, as happened in the early 'nineties of last century, but banks would have been unable to carry their customers through, or to face the losses which were unavoidable. New Zealand was fortunate in having strong banks which were able to carry on their customers and also extend considerable temporary assistance to the Government. "Our joint stock banking system is founded upon that of Great Britain, considered by Lord Snowden the best in the world, but there are people who think it antiquated and if they could get their way would dissipate the reserves; however, they are not men with a practical knowledge of banking. Shareholders, and also the Dominion, are to be congratulated on the strength of this institution, which strength ie due to the accumulation during many years of its various reserves, and has enabled it to perform an important part in the development of land and industries. 'Better to be Hopeful. , "The public accounts," said Mr. Wat--1 son, "disclose that for the past financial year the revenue amounted to £20,12G,000 and the expenditure to £24,500,000, leaving a surplus of £1,62G,000, principally due to profits on the eale of portion of the gold taken over from the banks and unusually high receipts from death duties. "Although the prices of our main products generally are at low levels, and our principal market is threatened with restrictions as regards dairy produce and meat, it is better to be hopeful than pessimietic regarding the future and to strive for, and look forward to, better things. A visitor with experience of South America recently told us that our land values were too high. He was only stating what a great many people in New Zealand believe to be the fact.

"Easy and plausible remedies" are suggested to restore good times. Industry and thrift seem to have little place in some of these ideas, which, were they put into operation, would make the position of the people very much worse. It is surely better to face our difficulties than look for easy and futile ways of avoiding them. New Zealand is in many respects a very favoured country. It should be borne in mind that ups and downs are the common lot of a people, and that our present difficulties, unpleasant though they may be, are not beyond the power of men to overcome.

Mortgage Corporation,

Dealing with the Mortgage Corporation of New Zealand and the Rural Mortgages Final Adjustment Acts, the Chairman said the shareholders were :ao doubt wondering what effect the legislation might have on the bank's business. "It may possihiy occur to you," he said, "that the Mortgage Corporation may prove to be <i formidable competitor for advances against farming properties—a class of lending, which constitutes a considerable portion of our loan business. Ido not anticipate, however, that the operations of the «.-o--poration will affect to any material extent the volume of our advances to sound farming customers, the majority of whom will, I consider, prefer to continue working on overdraft rather thaii on table or fixed mortgage. Neither do I think that other than relatively a small number of our farming customers will need to take, advantage of the provisions of the Hural Mortgagers Adjustment Act."

Referring to exchange. Mr. Watson said: "As the fixation of exchange is not now in the hands of the trading banks, nor is it dominated by gold, and ' there is no absolute certainty regarding future rates, we do not deem it advisable to alter the custom beyond dealing with pertain transactions whMi took place dunnsr fh". nast year. You will thus unrlers f ancl that the bank's larj?" London funds are a source of strength beyond what is stated in thn present. balance-sheet."