RESERVE BANK

Evening Star, Issue 22363, 12 June 1936, Page 6

RESERVE BANK

THE ANNUAL REPORT MET PROFIT, £98,012 [From Ocr Pabliamentabt Reporter.] WELLINGTON, June 11. The net profit of the Reserve Bank of New Zealand for the year ended March 31, 1936, amounted to £98,012 7s 2d. Of this sum £70,000 was paid in advance to the Consolidated Fund. The annual report of the bank was tabled in the House of Representatives to-day by the Minister of Finance, the Hon. AY. Nash. The report states that _ a dividend of 5 per cent, on the paid-up capital of the bank had been paid to the registered shareholders as on March 31, 1936. The remaining sum of £3,02l 7s 2d had since been credited to the Consolidated Fund, making a total of £73,012 7s 2d so paid over during the year. The profit was again affected very considerably, says the report, by the low rate at which British Treasury bills continued to be sold in London, the average rate obtained by the bank from that source being Is 2d. per cent, per annum. Having regard, however, to the statutory provisions governing the investments and reserve of the bank, the primary need of a central bank to maintain a very liquid position, and the almost entire absence of any other more profitable yet suitable means of employing its funds, the income of the bank could not but be dependent in large measure upon the yield. obtainable from British Treasury. bills. LIABILITIES AND ASSETS. The report points out that principal changes in the balance sheet, as compared with the figures at the close of the previous year, are as follow: An increase of £804,582 10s in bank notes, which more than offset a decrease of about £310,000 in the total amount of trading banks’ notes outstanding, thus reflecting an increase in the turnover of trade which took place during the year. . A decrease of £3,428,333 13s 9d in the State demand liabilities, which is accounted for partly by the sale to the Treasury of Tendon funds to provide for the repayment on October 1, 1935, of £2,135,800 (sterling) of the New Zealand 5 per cent. 1935-45 sterling loan and the cost of converting the balance of £8,000,000 of that loan. . An increase of £4,530.345 13s-6d in the demand liabilities of the banks. Since the end of November the trading banks’ balances have been maintain eel at a level exceeding by about £5,000,000 the total of the balances during the earlier part of the year.* Inis increase, the report states, was brought about bv the sale by the banks of London funds to the Reserve Bank. Ihe minimum balances required by statute in respect of demand and time liabilities as on March 30, 1936, amounted to £3,362,772. , , The changes in assets were as ioilow; —

In gold dealings, 200,000 sovereigns were sold in London at the beginning of the year. In sterling exchange, sterling funds (calculated at the rate of £IOO sterij n rr eauals £124 New Zealand) available for the purposes of the. Reserve Bank’s statutory reserve, increased during the year by approximately £9 418 000, the total at the end of the year being about £B,OOO 000 New Zealand currency) higher than the lowest point touched during the year. v Investments decreased on balance bj £ 'xKeport sets out that the .number of shareholdings decreased during the vear from 6,300 to. 5,699, and the averacro holding rose m consequence from m 7s 3d to £B7 14s 8d (nominal value). Pointing out that there ‘were no changes in the basic rates of . exchange quoted bv any of the countries in the sterling group during the last year, the report says that it is of interest to note a reported statement at the recent annual meeting of the Bank | or * n J®[ na ' tional Settlements to the effect that an area covering more than 85 per cent, of the world’s trade enjoyed for a full year the benefit of practically stable exchange rates. ' It is noted in the report that the Reserve Bank’s original discount rate

was 4 per cent., or 1 per cent, below; the best rate then being charged by the trading banks for overdrafts. The Reserve Bank’s rate was reduced to 3h per cent, in July, 1935, and then to 2£ per cent, iri March, 1936, and it was now as low as that of any other central bank* in the sterling group of countries, with the exception of the Bank of England, whose rate at present was 2 per cent. EASY MONEY CONDITIONS. In a general survey the report states that, in spite of an increase'in business activity, easy money conditions prevailed in the Dominion during the whole of the last financial year. The State accounts were always -in funds, and there was, therefore, no need for the Treasury or any other public department to borrow from the Reserve Bank. The trading banks likewise .maintained balances at above the levels' requited by statute, and they also were hot obliged to ask for accommodation. . “ In addition to the balances of the trading banks at the Reserve Bank.” the report continues, “the trading banks held Reserve Bank notes and silver coin, these three holdings combined forming their cash reservese in New Zealand currency. Over and above these cash holdings, they held substantial amounts of London funds in respect of their New Zealand' business, and in accordance with the statutory provisions such balances, to the extent to which they were held in liquid form, were available for immediate convereioa into New Zealand currency at any time. “Since the passing of the Banking Amendment Act, 1935, the totals of the trading banks’ holdings of New Zealand Government securities in the Dpminion have _ been added to their monthly returns. As these securities, which amounted to over £5,000,000 at the end of March, could, in case of need, be pledged as collateral for advance., from the Reserve Bank, their existence has a hearing upon the financial situation. The figures of the trading banks indicate the state of liquidity of the banking system of the Dominion throughout the year. That the total or the advances of the trading banks at the end of March was only very slightly in excess of the corresponding figure a year before may therefore be taken as indicating an absence of demand for ad- , ditional accommodation on tho part of satisfactory borrowers. This position is further evidenced by the fact that the overdraft rate has never been lower during the present century. * “ In the easy money conditions which prevailed,” the report proceeds, “the board did not consider that any useful purpose would have been served by an expansion, of Central Bank credit in tho Dominion to any appreciable extent, nor did there appear to, be any need for contraction. The Reserve Bank, therefore, aimed at the maintenance of a state of equilibrium rather than at the attainment of any other object by monetary' means. _ . .■ - ■ “ In all its actions the board has been, guided by its conception of the two primary functions of the Reserve Bank as a Central Bank. In the first place, as banker _to the State, it has aimed at conducting the affairs of the bank in such a manner as to enable it to give as much assistance as is to the Government of. the day in putting its monetary and financial policy' into operation; and, secondly, as banker to the trading banks and custodian,of the statutory cash reserves, it has within tho limits of its powers, endeavoured to render to them all reasonable support in the conduct of their normal business, and also safeguard their cash reserve* entrusted to its care.

“ ill the exercise of these functions, and in tendering any advice to the Government on monetary and financial matters, it is the constant endeavour of the board to act in a spirit of complete detachment from any sectional interests of any kind whatever, and ta regard all such questions entirely from the point of view of what is most likely to promote the welfare of the Dominion as a whole.”