BANK OF NEW ZEALAND

Grey River Argus, 17 June 1922, Page 6

BANK OF NEW ZEALAND

ANNUAL MEETING OF PROPRIETORS. WELLINGTON, June 16. Mr George Elliot, Chairman of Directors, presided to-day at the annual meeting of Proprietors of the Bank of New Zealand. With the consent of the meeting, tin' Report of the Directors xml tin.* Balance Sheet were taken as read. CHAIRMAN’S ADDRESS. The Chairman, in moving their adoption, said:—The Balance Sheet and Profit and Loss Statement record the results, so far as this Bank is concerned, in one of the most trying and difficult years in the business history of New Zealand. At last annual meeting £150.000 was transferred out of profits for 1921 to the Reserve Fund, and shareholders are now asked 1o approve of ft transfer of a like amount from the profits of the past year. This will bring the amount of the Fund up to £1.675,000. The total of Shareholders’ funds in the Bank, including the Carry Forward, will then amount to £5.480.515. These figures do not include the 4 per rent. Government Guaranteed Stock of £529.988 ]os 6d. Details are: —Notes in Circulation. £4.294,230 —(There is a decrease of £447.262 in this item): Deposits. £28.676,603, (decrease, £5,799,052); Bills Payable and other Inabilities, £3.713,175, (decrease, £403,398, is mainly due to falling off of sales of London Exchange); Reserve for Taxes, £426,000, (this amount will cover Income Tax on the profits for the past year). In the Dominion alone we paid la*t year the following rates and taxes: — Income Tax, £342,022: Land Tax, £lB,143; Tax on Note Circulation, £141,004; Rates, £11,039. Total £512,208. There is £14,402,673 in coin and cash balances, money at short call, and bills receivable in London, an increase of £152,526. We have had to draw heavily on the i -serves in London to meet customers’ needs, but the reserves have been replenished, while the remainder of our investments in London are at present worth much more than they show in our book values. The investments ifi the Dominion, and Australian Govern mien t Securities total £3,552,016. In this there is a decrease of £360.402 which represents proceeds of matured investments. The balance stands at the valuation of a year ago, though at present the saleable value is much higher. The total of Bills Discounted, other Advances, etc is £24,783,559 —ft decrease of £5,723,068. These figures will be commented on later. I.anded Property, Premises, etc total £296,472. The sum of £50,000 has again been set aside from the year’s profits for writing down this asset. Our properties are worth considerably more than the figures at which they stand in our books. PROFIT AND LOSS. The operations weit quite satisfactory, notwithstanding a falling off of £145,213, ns compared with the previous year’s profits. The decrease is largely due to overhead charges being greater by £110,452, which £92,745 is in the item Rates ami Taxes. Exchange profits in the earlier part of the year wore unusually high, but have since fallen off considerably, and a further reduction 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 the Carry Forward, which now amounts to £430,818. DIRECTORS. The period for which Mr Recce and myself had been appointed as Directors expired on 31st March, and we were reappointed by the Government for a further term. Mr Beauchamp left New Zealand early in April on a visit to the Old Country, and"the Board did me the honour of electing me to the chair for the present year. Mr Beauchamp was Chairman of the Board ■for 14 years. During that period he did not spare himself in the service of the B:>nk. His wide experience and business knowledge were of considerable advantage to the Institution Paring his visit to England he will be

associated wiin rue -L-onUon Board. We welcome back .Ur K. \\. Kaiiv. .During ms visit to London he iound opportunities of acquainting himself wiiu our business, and the knowledge ho gained there has aueady proved ol .aucii use to us. lire Bank of N.Z. Act, 1920, altered Directors term of Office from two to three years, so that every third year, no vacancies by af- I fluxion of time will arise. None ol the Government’s representatives will | go out of oilice on 31st. March, 1923, ; and, when the shareholders meet in December next, they will not have to elect or re-elect one of their number to tin- Board. STAFF. It gives mo pleasure to speak of the good service which lias been given to the Bank by its staff. Th-e anxieties begun some months before our last Annual Meeting continued throughout .he year, and a heavy burden has been laid upon the chief executive, officers. The Board feels sure that Shareholders will join with them in appreciation of the services rendered by these officers during an exceptionally difficult lime. As living costs are not yet back to normal, we have granted bonuses to all members of the staff, except young and single men whose salaries are on the ‘•Scale’’ which was adopted about two years ago, and which is based upon j lhe higher costs which then prevailed. ; We have made a special donation to increase pension benefits. ADVANCES AND DEPOSITS. As compared with 31st March, 1921, our advances, including discounts, show a reduction of £5,723,068, but this has not relieved pressure upon our resources, for it is more than offset by a contraction of £5,799,052 in our deposits in the same period. Between .rune, 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 13 millions; I at the same time advances increased I by 5$ millions; the total drawing on our resources being 18$ millions. These figures speak volumes for the strength I of the Bank and the liquid nature of [our Reserves. As to the Dominion’s | financial stringency there has been little change since last meeting, the stringency still existing. Advances to the trading community are much less than they were at th-e 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 large support we accorded to importers has therefore been* fully justified, and our | losses therein have been of little conI sequence. Low prices for N.Z. primary products obliged the producers to lean heavily on us. ft is hoped next .season’s produce will materially reduce lh>e advances. The stringency which arose nearly two years ago, made it difficult for local bodies to float loans on the local market at such rates of interest as th-e Government would sanction. In many cases the local bodies’ meeting of committments had to be faced by recourse to the Banks, thus adding to the pressure on us. This pressure is now -easing, as several Local Bodies recently have made successful local issues of loans at a 6 per cent. rate, lhe money could have been obtained in London at a slightly higher cost. Until financial conditions here become more normal, it is ‘important that local resources should remain available tor the further development of local industries, and that, when they can do so at reasonable cost. Local Bodies should borrow in London. Prior to the recent improvement in the London Money Market, a number of our Local Bodies raised money in Australia on 10-year bonds at 7 per cent. All the Banks in the Dominion have found, during the latter half of the year, that withdrawals of deposits have been greater than the reductions in advances: consequently the latest published averages—Manfli. 11922—Ghow the following figures:—Deposits, £40.360,389; Advances, £46.491.314; Excess of Advances, £6,130,925. This is an abnormal and undesirable state of things. RATE OF INTEREST. The minimum rate of interest on overdrafts in New Zealand has, for the last fifteen months, been 7 per cent. Exception is now being taken

to the continuance of that rate, in view of the- present cheapness of maney in London. It is doubtful, if, during the War period, and fur some time alter, 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 I yielded 6$ per cent., the Minimum Overdraft Rate in the Dominion remained at the pre-war figure of 5A per cent. Owing to the abnormal demand ■ for money by our customers in New Zealand which set in towards the end of 1929, it became necessary for the Bank to sell a number of its British investments which yielded a high rate of interest. Owing to our interest obligations, (including an increase on fixed deposits). expenses ami the need to check borrowing as much as possible, and to induce customers to realise assets, the rate of interests on overdrafts was raised to 6$ per cent. Just prior to that period, the Bank, to meet the necessities of its customers, discounted at the tlien Bank of England rate of 7 per cent, some millions of pounds of British Treasury Bills, and lent the proceeds on overdraft in New Zealand at 6 per cent. It then became necessary for us to continue realising our i gilt-edged investments if wo ■were to i stand by our customers to the fullest extent possible. I As time wont on, the position became more acute, owing to the fall in the value of land, produce, and live stock; ami increased taxation had to be faced, so we raised the rate on overdrafts to 7 per cent. In 1915 the New Zealand Income Tax we paid represented a charge’of three shillings per cent on the average of our advances in New Zealand. For the past year, the charge will be thirty-four shillings. The Bank, owing to the rise in Income 'fax 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 5$ per cent. It is an easy calculation—7 per cent., less 34s for Income Tax, leaves lhe Bank with £5 6s per cent, now, as against £5 7s in 1915. To lessen th-e demands upon up, customers were urged to sell War Bonds and other investments, to borrow on mortgage of landed property, and also, in the case oT Joint Stock Compani-es, to get in un- , called capital. Tinies, however, were • bad. War Bonds were at a heavy discount, and most investment shares had fallen considerably in value. .Mortgage rates wore as high, or higher, than the overdraft rate. The response, therefore, to the Bank’s request to take measures to restrict demands upon it was, for the most part, disappointing. I might mention that certain critics seem to have lost sight of the. conservation of Capital that the generous support given by the Bank has effected, whereby customers have been enabled to postpone realisation ot assets ponding inprovenient in values. i It is a fallacy to suppose that reduction of the Bank of England rate necessarily means a reduction in lhe overdraft rate here. On the contrary, under certain circumstances, it should mean an increase. Every bank in the Empire requires to keep a large amount invested in London in immediatolv-rc-alisabl-e securities. As the Bank of England rate falls, so does the interest ; return on such investments. The position at present is, that our London funds, on which we received from 5? per (--ent. to 6.'. per c<-nt. when the overdraft rate here was 6 per cent, now yi-i 1 n« 21 imr rent. We could afford to keep overdraft rates low. but must not. bv making monov cheap, handicap ourselves in our I efforts to bring down advances to normal figures, which is our paramount j necessity to-day. Amnio cash and other i immediately realisable assets must bo I maintained for customers’ protection. . and the extent to which it meets | the wants of borrowers must be Togu- | latod accordingly. Certain profits ) made in the last two years will be nonrecurring. Our advances in the DoI minion are much higher than we care to see them, and arc justified only 7>y I the need of so many customers, and by J the fact that in the majority of cases j it is only a matter of time for the po- ' I sition to right itself. As these ad- 1 | vances are reduced, our London reserves will bo built up, but in investments I yielding a much lower return. Tn tap j last six months we realised one million I of s*| per cent British Exchequer Bonds due three hence, atd one million

of 5 per cent British National W’ar Loan. At this time of the year, proceeds of produce shipments replenish our funds in London, but new money is now bringing us in only 2$ per cent. When the Bank of England rate is 4 per cent, it means that that institution’s minimum rate of discount is 4 per cent, hut 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 endorsement of a hank or of some financial house. The bills offered. to hanks in New Zealand are practically confined to those given, by retailers to their merchants, and by farmers and dealers to the stock and station agents; these we discount nt 6' per cent., hut they are by no means liquid as are those discounted by the Bunk, of England. As to English bonuses on non liquid securities they pay similar rales to those here, and the debentures of some of the leading English industrial companies are now quoted at prices which yield from 6$ to 7 per cent It) the investor. English bankers, atlvances. being liquid and readily convertible into cash, they can work on much smaller cash reserves, and the larger volume of business done, with smaller expense' ratio, and comparative immunity from bad debts, enables them to work on a. much smaller margin of profit. A POINTED REMARK. It is not. the 7 per cent rate that is embarrassing farmers—who arc the chief complainants—it. is the ridiculously high price that, in many cases, was paid for land, which not infrequently is mortgaged for more than its actual value. Another cause is that far larger areas were bought than the. purchasers’ means warranted. In still oih r instances, mortgages, in order to secure a low' rate of interest, borrowed on mortgage sums which gave them no margin of funds to meet contingencies, and cannot now obtain further advances from the mortgages. Realisation of or portion of their land is the solution of the difficulties, and not a mere reduction of their interest charges. N.Z. INTEREST RATES. ' The minimum rate of interest within the Dominion on mortgages and other advances may, until the end of 1921, be regarded as 6$ per cent., Parliament having fixed that figure as the rate on mortgages covered by the Mortgages and Deposits Extension Act of 1921. The minimum overdraft rate is usually $ per cent or 1 per cent higher than the mortgage rate. (The report goes on to deal with State and Agricultural Banks, which references will be recorded elsewhere).