BANK OF N.Z.

Greymouth Evening Star, 16 June 1922, Page 2

BANK OF N.Z.

ANNUAL MEETING.

WELLINGTON, June 16.

The annual meeting of the Bank of New Zealand was held to-day, Mr George Elliott presiding. In moving the adoption of the report and balance sheet, the Chairman said :—

The balance-sheet and profit and loss statement which we have before us today records the results, so far as this Bank .s concerned, of one of the most trying and difficult years in the business history of New Zealand. The result > f the year’s operations has been qufie satisfactory, notwithstanding a falling o.’f cf £• 145,213, as compared with the previous year’s profits. The z decrease is hrgely the result of our overhead charts tv.ng greater by £110,452, of which £92,745 is in the item rates and taxes. Exchange profits in the earlier part of the yen' were unusually high, but have since fallm off considerably, and a further reduct! >n is to be looked for. For these reasons, and also because financial conditions in the Dominion are not entirely satisfactory, an addition of £69,543 has been made to <hj carry forward, which now amounts to £130,818.

As compared with the figures at March 31, 1921, our advances, including discounts, show a reduction of £5,723,068, but this reduction has not relieved the pressure upon our resources, for it is more than offset by a contraction of £5,799,052 in our deposits in the same period. It may interest you to learn that between June, 1920 (when our deposits in the Dominion reached high-water mark), and January last, there was a drop in the deposits of no less than thirteen millions; at the same time advances increased by 5g millions ; the total drawing on our resources being 181. millions. These figures speak volumes for the strength of the Bank and the liquid nature of our reserves. Little change has taken place since then. At our last meteing my predecessor referred., to the financial stringency and its causes. Little change has taken place since then. Financial stringency still exists, consequently the attention of the directors and of the officers of the bank has been fully taken*up with problems arising from conditions suclr as we have not experienced for many years. Advances to the trading community are much less than they were at the beginning of the year; liquidation of the excessive stocks of imported goods, that created so much difficulty from September, 1920, onwards, has been vigorously carried out, often at great sacrifice. The low prices ruling for several of the most important products of the country obliged primary producers, and those.connected with them, to lean heavily upon us. It is hoped, however, that when next season’s produce becomes available, these advances will be materially reduced. We have felt it to be our duty to give the fullest measure of support to the primary industries of the Dominion, even at the risk of loss in some cases

RATE OF INTEREST. The minimum rate of interest on overdrafts in New Zealand has, for the last fifteen months, been 7 per cent. As exception is now being taken to the continuance of that rate, in view of the present cheapness of money in London, I take this opportunity of stating the reasons which have necessitated the

maintenance of our apparently high rate. It is doubtful if, during the war period, and for some time after, any British community enjoyed such a low rate of interest as did New Zealand. When the Bank of England rate was 7 per cent, and British Treasury Bills yielded 65 per cent., the minimum overdraft rate in the Dominion remained at the pre-war figure of per cent. Owing to the abnormal demand for money by oui’ customers in New Zealand which set in towards the end of 1920, it became necessary for the Bank to sell a number of its British investments which yielded a high rate of interest. In order to provide for the loss of interest due to these transactions, to meet higher rates of .interest allowed on fixed deposits, to cover our ever increasing expenses, to check borrowing as much as possible, and to induce customers to realise assets, the rate of interest on overdrafts was raised to 61 per cent. As time went on the position became more acute, owing to the fall in value of land, produce and live stock, and increased taxation had to be faced, and it was, therefore, decided to raise the rate on overdrafts to 7 per cent.

Apart altogether from other increased costs of carrying on our business, the bank, owing to the rise in income tax alone, is getting a smaller net percentage now on its overdrafts at 7 per cent, than it did in 1915, when its minimum overdraft rate was 51 per cent. It is an easy calculation —7 per cent, less 34s for income tax, leaves the bank with £5 6s per cent now as against £5 7s in 1915.

It is a fallacy to suppose that reduction of the Bank of England rate necessarily means a reduction in the overdraft rate here. On the contrary, under certain cir-

cumstances, it should mean an increase. Every bank in the Empire requires to keep a large amount invested in London in inimediately-realisable securities. As the Bank of Englanderate falls, so does th interest return on such investments. The position at present is, that our London funds, on which we received from 5J per cent to 61 per cent, when the overdraft rate here was 6 per cent, now yield us 2J,- per cent. 1

It cannot be too strongly emphasised that the first duty of a bank is to its depositors, that ample cash and other immediately realisable assets must be maintained for their protection, and that the extent to which it meets the wants of borrowers must be regulated accordingly. It is admitted that during the last two yeais the Bank has, from several causes, earned large profits, but these will be non-recurring. Our advances in the Dominion are much higher than we care to see them, and are justified only by the extreme need ..f so many of our customers, and by our consciousness that in the great majority of cases it is only a matter of reasonable time for the position to right itself. As these advances are reduced, our London reserves will be built up, but they will built up in investments yielding a much lower return than those we had to realise. Lest there be any question as to the correctness of this statement, I may tell you that, within the last six months, to meet the requirements of our New Zealand business, we realised one million of 5| per cent British Exchequer bonds due three years hence, and one million of 5 per cent British National War Loan. There is evidently some misconception

as to the relation between the Bank of England rate and the ruling rate of interest in this country. When we are told that‘ the Bank of England rate is 4 per cent it means that that institution s minimum rate of discount is 4 per cent, but the bills which they discount at 4 per cent are of a class which are never offered here—that is to say, they are for short terms, and usually bear the en dorsement of a bank or of some financial house of the highest standing, and are thus one of the most liquid forms of investment a banker can deal in.

STATE BANK

The establishment of a State Bank in the Dominion is being advocated in certain quarters,' but as the position lias not been fairly and fully .put to the- public, it is desirable that I should say something on the subject. There is only one State Bank in Australasia, and'it is contended that the success which has been attained by that institution, founded nine years ago, warrants the foundation of a similar institution in New Zealand. Ihe conditions in the two countries are, however, entirely different. One- third of the capital of the Bank of New Zealand is owned by the State, and the Government appoints a majority of the Boaid of Directors. The State Bank referred to, which serves a population of more than four times that of New Zealand, has not, during the nine years of its existence, made any contribution to the public revenue whatever, either in the shape of dividends or taxation. True, it has amassed a surplus of £3,792,726, which remains in the business, and is practically its working capital. The Bank of New Zealand, on the contrary, during the last nine years, has, exclusive of £375,000 bonus shares issued to the Government, contributed ■> to the revenues of this country no less a sum than £2,171,450, and in addition £65,463 has been paid to local bodies for rates.

The last balance-sheet of the State Bank referred to shows that in its ordinary banking department it held £26,000,000 Of deposits, whilst its advances to its customers amounted to £14,000,000. The deposits of our own Bank in New Zealand alone, exclusive of those of the Government, at March 31 stood at £19,500,000, whilst our advances in the Dominion amounted to £21,700,000. The rate of interest charged to the public on overdaft by the State Bank is 6 per cent, whilst 7 per cent is charged by banks in New Zealand. If our Government were to place the banks in this Dominion on the same basis as that of the State Bank, as far as rates and taxes are concerned, the rate for advances here could be at once reduced. In the Post Office Savings Bank and the Advances to Settlers Department the country already has two organisations that, as a combination, to all intents an purposes meet the objects for which alone a State Bank might be justified. But do taxpayers realise what is lost to the State in income tax alone, through the business done by those organisations having been diverted from the ordinary banks? There is little doubt that the establishment of a, State Bank here would militate against the growth of deposits in the Post Office Savings Bank, which for many years past have been increasing in a substantially treater ratio than the deposits with the ordinary banks. It may be doubted if m

any British country the banks have to face such severe competition from Post Office Savings Banks as do the banks in this country. In Great Britain the Post Office Savings Bank holds deposits to the extent of about £6 per head of the population, whilst the figure in this Dominion is £3B.

AGRICULTURAL BANKS. The question of instituting agricultural banks in New Zealand is being discussed at the present time. That such institutions supplied a much-needed want in Europe, where they were first started about the middle of last century, is evidenced by the success they have met with. But that they would be as successful in New Zealand is doubtful, lor conditions here are entirely different from those obtaining in Europe. In addition to the Advances to Settlers Department of our Government, which has lent many millions on farming properties, there are in this country a number of co-operative farmers’ associations, mainly, if not entirely, owned and controlled by farmers. These associations are widely represented throughout the Dominion, and one of their principal obects is to make advances against live stick, wool, grain, and other products of the land. In addition, there are large proprietary concerns doing a similar class of business, to say nothing of the ordinary banks which have, to a very large extent indeed, extended credits to pastoralists and agriculturists. Under normal conditions, therefore, the needs of the farming community are adequately provided for by existing organisations. Doubtless an attempt would be made to get the Government to guarantee the agricultural banks. Such a guarantee would, it is to be feared, involve the Government in loss, for it would take away the personal responsibility, the strict control and close supervision that are necessary to ensure success in any such undertaking. So long, however, as farmers are prepared to shoulder the full responsibility, there is not the slightest reason why they should not try the experiment of an agricultural bank.

Mr K. W. Kane seconded the motion, which was adopted.

Replying to questions, the C hairman said that he believed the rates for overdrafts in the Argentine were seven to nine per cent in business similar to that of New Zealand. . He could give no idea when further capital would be issued. Mr John Mill, proposing a vote of thanks to the directors, general manager and staff, referred to the State Bank, quoting Mr Massey, pointing out that it was not in the interests of the Government to institute a State Bank, the Bank of New Zealand pays annually £600,000 to Government revenue. The Bank also employs over 1300, the salaries amounting to £400,000 per annum, and was providing a large sum for pensions for old age. The bank could not be taken from the shareholders without an adequate price being paid for the concern. The meeting concluded with an acknowledgment by the Chairman and general manager of the bank.

LOWER BANK RATE. LONDON, June 15. The bank rate has been reduced to 3|per cent.