BANK OF NEW SOUTH WALES

Dominion, Volume 23, Issue 57, 30 November 1929, Page 13

BANK OF NEW SOUTH WALES

PRESIDENTS ANNUAL REVIEW A NOTE OF WARNING The address of the President of the Bank of New South Wales, Mr. Thomas Buckland, in moving the adoption of the report and balance-sheet at the annual meeting of shareholders, is of particular interest on the present occasion. Mr. Buckland (whose speech by the way, was composed and printed before the Budget proposals of the Commonwealth Labour Government were brought down a few days ago) traverses the trend of events in private and public finance in Australia and issues a note of warning which must command serious attention in this Dominion as well as in the Commonwealth.

Mr. Bttekland said: In rising to move the adoption of the report and balancesheet I shall review the main items and compare them .with last year. The movements taken as a whole _ are indicative of the conditions affecting us to-day. There' is evidence of the marked drop during recent years in the prices of our staples, of the continuation of drought conditions in many districts and of increasing costs and the lack of continuity affecting industry and commerce to the disadvantage of all. Taking the less- important items first, the note circulation in New Zealand shows a small decrease. Bills payable at £7.284,000 represents a small increase of £84,000. Bank premises are £225,000 higher and » > stand at £1,450,0Q0. The increase is largely lue to the new head office building, and the new building for our Brisbane branch. Unfortunately the progress of the -work on these two buildings has been delayed. We hope to be able to occupy the new premises in Brisbane in about three or four months, and to transfer our Sydney business into the rear portion of the new head office building towards the end of January next. The old building at the corner of George and Wynyard Streets will then be handed over to the contractors to be pulled down in preparation for the front portion of the new structure. The building of this is expected* to take three years. We may therefore have to hold three more annual meetings in this room, as the administrative offices will remain in Endeavour House to avoid making a double transfer. . . . Having dealt with these items I can best ■ explain the movements under the Other headings by showing their relationship to each other and to the conditions at present obtaining. Slowing up of. Progress. Deposits, £66,056,000, show a small increase of £1,541,000! . This taken with the like experience of other banks is evidence of the slowing-up of our national progress, and a lower capacity to provide for the development of the many and varied industries of the community. It seems necessary to repeat what I said two years ago in this connection. The drain on local funds, as the result of borrowings by Governments and local authorities, appreciably affects the accumulation of deposits. This in turn reduces the funds available for advances, and for that private enterprise upon which our progress and wealth mainly depend. Without a steady and appreciable increase in deposits year by year the banks ctonbt extend theii* support to the development of the community. The banks cannot create credit except by resorting to inflation with its painful aftermath. This leads me to the point 1 wish particularly to stress. The people as a whole will bring hbout their own undoing if they ■ pursue the policy ‘.of past years with its extravagant and often unreproductive expenditures. Such policies with their reduction of output—not necessarily the value of output—must bring hard times and force upon us a lower standard ,of living. When these are combined with a serious fall, in the prices obtainable for our chief staple, wool, and a considerable reduction in the quantify of another, wheat,. due to adverse weather conditions, the outlook , ,is hard indeed. The figures of the balancesheet give full support to the position thus outlined. Advances have increased by £8,074,000, making a total of £59,427,000. When taken with the comparatively small increase in deposits this is a striking testimony to the way in which , our customers have found it necessary to lean upon us during the past year, and when it is ’realised that the experience of the other banks is similar to ours in this department also it behoves all of us to take stock of our position, both as a community and as individuals. The'money for these increased advances has been provided mainly from our liquid assets, Government and other securities, Treasury bills, and cash, which show reductions of £2,074,000,- £2,000,000, and £4,090,000 respectively. On the other hand money at short call has increased by £1.220,000, and other items show small increases. Last year our holding in cash was on the high side for this time of the .year, so that the reduction is not as important as it may appear at first sight. These figures will begin to readjust themselves as the proceeds of our produce come to hand and the community accommodates itself to our altered conditions. This readjustment will, however, tend-to be slower than in past years. The prices and quantites of our primary products are so much less and the national income so much smaller. The capital is the same as last year. £7.500,000, and it is proposed to add £250.000 to the reserve fund, making it £6,150.000. Conservation of Resources. l ln view of the serious fall in the prices of our staples over recent years, there must follow an appreciable fall in the values of our lands and other assets of the community. Your directors therefore feel that the prudent course is to conserve the resources of the bank. It is proposed to pay the usual dividend at the rate of 10 per cent, per annum, but not to pay a bonus on this occasion. The shareholders have ha'd the benefit of four bonuses in succession, or, in other words, have received ill four years dividends which would in the ordinary course have been paid over a period of five years. This decision will not come altogether as a surprise to you. as I have warned you on each occasion that the bonus is a matter of each year only, and not to be taken as a precedent or an earnest of continuance. In 1927 I asked the newspapers not to include the bonus when stating the rate of return on. the quoted price of our shares. This advice, I regret to say. was utterly disergarded.

Taxation Burden.

Before leaving our own immediate affairs it is desirable that I should draw your attention to the burden taxation is becoming in our own particular case. The bank has paid £350,080 during Uie year. This is am increase of £55.741 on the amount paid last year and of £79,019 on the year before. Taxation now represents a charge of £4/13/4 per cent, on our capital, a charge which in two years has risen somewhat over 1 per cent. Turning now to conditions generally we expect to find some districts having good seasons and some bad in a business covering the large areas we do. The winter in Tasmania has been rather severe. The western parts of Queensland and New South Wales are still drought-stricken, as are the north-west-ern parts of Victoria and the northern portions of South Australia. Western Australia generally speaking is having the best season all round of the Australian States, although the wheat crop will not be as large as was hoped for some couple of months back. While recent rains and cool weather have improved the outlook for the wheat harvest in New South Wales. Victoria and South, Australia, the yield will be much below'average. The wool dip will be considerably lower than

last year, and with the continued fall in prices returns in most cases do little more than pay expenses. It is cheering to be able to report an improvement in the beef cattle industry, which has suffered so severely for some eight or nine years. / As to the future, the season is opening with more promise of good rains, and we look forward in the hope that the long drought will pass from our western areas at no distant date. Could we but settle our industrial troubles and reduce our costs of production to enable both primary and secondary industries to work on a profitable competitive basis with the rest of the world, and secure in their freedom from strife, the present trade depression would soon pass. The seasons in New Zealand have been good and the country is prosperous. The external trade shows a substantial balance in favour of exports, while Australia’s balance is the other way. Conditions in Fiji are good, despite lower prices for sugar and copra, as are also those in Papua and the Mandated Territory of New Guinea. Before concluding I wish to refer.briefly to several matters of current interest. Reduced Australian Exports. The reduction in the quantity of our chief exports, due to the drought conditions which have prevailed over many parts of Australia, coupled with the continued fall in values; is having the effect of decreasing Australian funds abroad. These funds are required for the discharge of Government and other obligations, and for the handling of Australia’s external trade. Excluding such outside influences as borrowings abroad ’by Governments and others and the investment of capital from outside in Australian ventures, imports will always adjust themselves tf exports, but with a lag—if" exports increase imports should increase at a somewhat later date; while the converse is true that imports will decrease' following upon a decrease 'in exports. It would be very unwise to attempt to correct thi present position by placing an embargo on imports generally or on specified imports. To do so would in the first instance damage our good trade name, then create injustices among the trading community according to the way in which different sections are placed with regard to their external commitments and further expose individual traders to the risk of damages for breach of contract, etc. On the other hand, should prohibition of imports become effective, Iwe should lose our Customs revenue .and‘ultimately be unable to sell abroad our surplus products —wool, wheat etc.. These products would then become valueless or of little value, as production is far in excess of Australia’s capacity to consume, and disaster would be the result.

As against this question of restriction of imports, we have certain sections of the community who have resorted to, or wish to resort to, artificial means of controlling the? realisation of their produce. : I do not think that any such artificial tampering with the course of marketing will in the end achieve the objects aimed at, but the serious, aspect of the case, from our point of view, is that those who have sponsored such schemes have .apparently overlooked the question of finance. How is it possible for us to carry over a considerably extended period the product already harvested or shorn, while at the same time we are' called upon to finance the growing harvest, of clip? -In times when money is plentiful it might be possible to go a long way .towards'achieving this object, but in a period when our loads are already heavy it is very doubtful whether our financial resources will enable such Schemes to be carried through without denying the necessary finance to those in need of, it for the current season’s requirements. There is another aspect of this question. It is unsound for the producer to become a speculator in his produce. The Note Issue. It has been suggested that proposals are being considered to extend .the note issue. : It is a feature of any clastic currency system that it should be capable of extension to meet the seasonal requirements of the community from time co time, but it is a very different matter when, either by design or otherwise, reduction in the percentage of gold backing occurs apart from seasonal requirements. If by design, such a movement, when divorceci from the genuine trading requirements of the community, becomes inflation, bringing about higher prices with an increaseci cost of living, which bears most hardly oh the workers and those on fixed incomes. Any such inflation would incre'ase the, burden which is already a heavy one upon our exports, and consequently our primary industries; while on the other hand it would encourage imports. Another effect would be the continued drain of gold until no doubt resort would be had to an embargo on the export of gold. The Australian note would th/n become inconvertible and the doors would be flung wide open for inflation in its worst form. The proper means to check any such drain would be to raise the interest .rates and so preserve the common measured value we have to-day with all other commercial countries. Local Borrowing. Another proposal is that all borrowing by Governments and local authorities should be restricted to th/ Commonwealth and that no loans shonld be raised abroad, a policy with which I agree. To adopt this policy now, however, would restrict all development work in Australia to such proportion of the amount of the annual savings of the Australian community as could lie attracted to investment in such loans. To borrow beyond this would create inflation, which has been referred to above, in connection with the note issue. In a partially developed country such as Australia it is necessary for a time that capital in addition to the savings of the community should be attracted from outside to enable important schemes of developmental works to be carried on. To refuse absolutely to accept’capital from abroad would be to slow up our development suddenly and limit it to our own capacity to undertake it. The latter is the more desirable course, but having pursued such a policy of external borrowing for many decades, to turn round now and limit borrowing to the funds available in the Commonwealth would be to increase unemployment far beyond ' the ’ conditions now obtaining. Largely owing to the tremendous wastage of accumulated capital during the war and the policies pursued more or less throughout the world during and since then, the supplies of available funds fall short of reqijjreme'nts and rates of interest are tending to harden throughout the financial world. Owing to this there is no doubt that'we shall have to pay more for pur requirements in the immediate future. Should a policy of borrowing internally be persisted in, the funds so obtained must be withdrawn from the funds in use by the community in its trading and industrial activities, both primary and secondary. It is easy to see, therefore, that the. employment giyen

on the one hand would increase the unemployment on the other, while the withdrawal of necessary finance would tend to weaken or destroy a proportion of industries already existing, and the income available for taxation for Government purposes would be reduced over the whole community. The Loan Council ought to advance warily and not be led away into great additions to public indebtedness,,whether internal or external. The economic burden of an internal debt is just as heavy as that of an external debt. Much is made, and rightly so, of the distinction between borrowing for productive and for unproductive expenditure. lam afraid that much of our. so-called productive expenditure is in reality more or less unproductive, lhe simple practical rule for productive expenditure is, that after a term ot years the undertaking should repay the original expenditure,” in addition to providing interest, depreciation, etc., during the currency of the loan. To the extent that our 'loans Are not fully productive they are a burden to us, and unproductive expenditure tends to leave nothing behind but debt arid unemployment.

High Cost of Production.

Our borrowing policies in the past have contributed materially to our unemployment problem. The scale ot borrowing has meant inflation, with rising prices and disordered trade. With our arbitrary systems of wage fixing this policy meant Tiigher and yet higher wages. We cannot have continual and general rises in wages and keep the costs of production within economic limits. Taxation on capital will indirectly affect the wages of labour, and so tar tend to lessen the productive power. luxation is also a feature of the costs of The serious reduction in our national income during, recent years must impress everyone with the urgent necessity ot reducing the costs of production as well as public and private expenditure. We must realise now that the wastes of war and of unproductive expenditure in the sense I mentioned above can only be made good by greater effort. There is no other way out. Expedients, such as borrowing to provide employment, inflation of the note issue, or the maintenance of high prices by fixing money, wages or restricting output, will lead us to harder times and greater difficulties. Expenditure must be reduced. There is abundant evidence in the financial columns of the Press that capital is already having to face the readjustment. Labour as a rule benefits by fallin„ prices-and loses by rising prices. Readjustment Needed. Are we as a people incapable of facing the position we find ourselves in. Are we able to keep up artificial cates of wages and' working restrictions the while repeated applications to the Courts show that real wages, thatt is, purcbasing power, do not follow them. Is it sound to follow the doctrine of high wages for some, while others cannot find employment at that figure? Is it not better for all to work on a lower nominal "’age. Could not the readjustment be made by small amounts monthly spread over an extended period, and so reach a sound and profitable basis with as little injury •to trade and industry as possible. It is imperative that we should be able to produce both in the primary and secondary spheres at a cost enabling us to sell at a profit in competition with the outside world, and, I emphasise, to do so without artificial aids such as bounties, eto. , . . The serious increase in taxation is another feature of the high cost of production. This burden is accentuated by the uncertainty, from year to year, in the incidence of taxation and by the administration of the various Acts, which is too often unsympathetic and failing in appreciation of the needs and difficulties of the taxpayers concerned. The Commonwealth Bank. The last suggestion I propose to deal with is that the Commonwealth Bank should be made a People’s Bank. Those who set this before themselves as their policy do not define the term People s Bank,” but it has a specific meaning in domestic banking. Suffice to say here that a People’s Bank is not a trading bank in the ordinary sense of the term. It is a co-operative credit institution to assist wage-earners and small husbandry. I take it that what is meant is a trading or commercial bank. Il e have a population of about six and onethird millions. The trading and savings banks of Australia, and in this connection we include also the Commonwealth Bank, have 2945 branches with .1468 ■agencies, a total of 8413 points at which banking facilities are offered to the community. This works out approximately at one . for every 756 of the population. It can thus be seen that there is no reason to be adduced from the dearth of banking facilities to demand the conversion of the Commonwealth Bank into a People s Bank. On the other hand it is necessary to point out that over a period of years the Commonwealth Bank in cooperation with the trading banks has been gradually-making progress towards becoming the Central’ Reserve Bank of Australia, and thus the keystone of the financial arch. Consultations have been had with recognised authorities on this subject, and the principles as laid down by them have ever been kept in the forefront of the board’s policy. To. alter this policy wsiild be to destroy the work of years. The Commonwealth Bank would then become, involved in the ordinary vicissitudes of trade, commerce and industry in the same way as the trading banks are. As it could not then fulfil the functions of a Central Reserve Bank., being involved in the same way as the trading banks, and having its assets in the same largely nnliquid form’ as a trading bank, must neces--sarily have, the support of the latter would of necessity have ft) be withdrawn. The 1 financial position of Australia would then revert to what it was in. the first few. years,of this century, where every brink had to stand on Its own feet. Naturally tip* promoters of the Commonwealth Bank take pride in it, but would it not be an .achievement far beyond what jts sponsors intended were the present policy accepted and the Commonwealth Bank, with the assistance of. the trading banks,

allowed to proceed on its way to achieve the great and outstanding distinction of becoming, when the time is ripe therefor, the Central Reserve Bank of Australia. In conclusion I wish to express the directors’ appreciation of the work ot the staff throughout the past year. Dvring thqt period~Mr. Oscar Lines, our general manager, retired, and Mr. A. C. Davidson was appointed in his place. It is with profound regret that I refer to the untimely death of one of our directors, the late Mr. F. B. S. Falkiner, and of one of our auditors, the late Mr. AV. Harrington Palmer. We wish to place on record file valuable services they rendered the bank, the former during the eleven years he was a director and the latter as an auditor for periods extending over the last 27 years, and to express our sympathy with those whom they have left behind in their bereavement. To fill the vacancy on the. board ■ Sir Kelso King was asked to join the directorate. —Extended Report Published .by Arrangement;.