FINANCIAL YEAR

Hawke's Bay Tribune, Volume XX, Issue 295, 2 December 1930, Page 6

FINANCIAL YEAR

BANK OF NEW SOUTH WALES

CHAIRMAN’S ANNUAL ADDRESS

At the ordin icy general meeting of , the Bank of New South Wales, held at the Head Office, Sydney, on Friday, the chairman Mr Thomas Buckland, president of the bank, moved the adoption of the report and bal-ance-sheet. The president, in his address, stated: — The seasonal conditions generally throughout Australia could hardly be better or more promising than they are at present. Everything points to a heavy crop of wheat, the wool clip has been well up to expectations, and the other sources of our wealth —sugar, fruit, butter, etc.—will be productive of good yields. In New Zealand the seasonal conditions are good, as is usual with that favoured Dominion and full advantage has been taken of the opportunity afforded to increase output of primary products. As in the case of Australia, the effect of the low prices obtaining for exports has been felt, but the position is recognised and steps are being taken to combat it. CHANGES DURING YEAR. In considering our balance-sheet figures for the past year 1 would ask you to bear in mind two outstanding changes in the generol situation; (1; the unexpected severity of the recent fall in the prices of primary products and (2) the difficulty of further Government borrowing overseas. Wool has fallen in value by 48 per cent, during the two years since December, 1928, and the difficulty of placing new issues of Australian securities in Ixindon may be seen in the long delay which has marked the funding of present overdrafts and Treasury bills outstanding there. Your directors have given most earnest thought to the causes of these changes and to their effects both on the various sections of our customers and on the public generally. An institution such as ours has a responsibility to the community amounting to a great public trust. Having in view the degree of the present recession of trade the risks of its extension and the task of recovery from it, youi directors have sought to lessen its destructive impact by giving the utmost assistance to the community and to Governments. They ask you to support them in making further provision for the future. Our aim is not only to guide and help our customers through the night of difficulty. but to be strong to send them on their way when the morning of recovery dawns. Keeping this aim in view, let us turn to the figures before you. Comparing our figures with the balancesheet of the year before, there is again a small decrease in our note circulation in New Zealand. Bills payable at £6.058,000 show a decrease of £1,215,000. On the other side of the balance-sheet hills receivable in London and remittances in transit (£3.399 000) show a decrease of £1.440.000. These two items are indicative of the lower turnover in business and of the lower prices for our produce to which I have already referred. INCREASED DEPOSITS. Deposits total £66.238.000. This shows an increase of £182,000 on the year, a satisfactory position in view of pi esent conditions. We must be very careful, however, in a large business such as curs, not to place too much reliance upon the figures disclosed on any one particular day in each year. It is not unsual to have large ’ adverse movements during a tew consecutive days in a year opposed to a favourable movement in the following or preceding year and sufficient to cause a substantial alteration as compared with the overage figures It is possible, therefore, that our figures at the annual balance date may include sums which will not stay with us for long. Such variation is an inevitable feature in a banking business as widespread in its ramifications as 'that done by your institution. While it may be a symptom of sluggish enterprise, the increase of deposits is. nevertheless significant of the confidence reposed in the strength and resources' of the old bank. But we cannot overlook the general tendency of deposits to decrease in a period of falling prices and of readjustment to lower turnovers. On the assets side of the balancesheet our cash items amount to £ll,484,000. an increase of £303.000 compared with last year. Our total liquid assets come to £24,818,000. a decrease of £2,228,000 on the year. I have already referred to £1,440.000 of this decrease under the heading of bills receivable in London and remittances in transit. This decrease has been due to present conditions of trade. After allowing, for this amount the reduction in our liquid assets is revealed nt £788,000, leaving our immediate cash resources in much the same position as a year ago. There have been important changes, however, in the composition of various items. In order to render all the assistance possible both to our customers who in Australia represent a substantial proportion of the population, and to Governments, we have strengthened our investments available at short date. In this way our liquid assets arc more readily available to meet emergencies to-day than they were twelve months ngo. FIRM SITUATION. The most important feature of our figures is that showing the extent to which the bank has been able to lender assistance to its cusomers. I must remind you, too, that its customers are not confined to the Commonwealth of Australia, and this assistance has bee.i rendered in New Zealand and other places proportionately with Australia. As more than half of our advances are wrapped up more or less directly in the great primary and exporting industries, we have been called upon to help these in facing the difficulties which have befallen them during the last two or three years. In this country tbe first blow of a recession of trade falls upon the primary producer. This shock then spreads throughout the various sections of the community, such as employers of labour, wholesale and retail trades, manufacturers, investors, and, last-of all, it reach' 1 i"-; a earner. This is the situation we face to-day. Our wool-growers and wheat-farmers arc struggling to carry mi in face of costs which are greater .than the returns they get for their produce. The values of a long List

of investment stocks have fallen 45.5 per cent., and dividends thereon 3.28 per cent, during recent months. 'I he latter figure represents a diminution of income by about one-third. By piling up indirect as well as direct taxation, Governments arc crippling the only industries which can pull the communitv out of the present depression. Without an immediate and substantial reduction in the costs of production, prosperity and the sources of public revenue cannot be restored. Your directors adopted the policy nt the onset of these troubles of doing all they could to take up on behalf ot our customers the first shock of falling prices and adverse markets At one point during the last two years this policy had called for assistance to the large extent of £15,000,060. made up of an increase in advances of £12.000.000 and a decrease in deposits of £3,000,000. Since then the ordinary flow of business has brought about sdine reduction which under present conditions cannot be regarded as moie than temporary. Compared with last year our advances, etc., show an increase of £972,000, but with those ol the 30th September, 19'28. the increase amounts to more than £9,000,000 READJUSTMENT PERIOD. At present it is hard to foresee, any substantial reduction in our advance business or even a maintenance of deposits. '1 he adjustment of costs which will permit the export of our products, whether primary or secondary. at a profit to their pioduceis proceeds slowly. By obstructing every effort to push through quickly this critical phase of reconstruction well-meaning but short-sighted men are prolonging the misery and waste of unemployment. It is to be hoped that wiser counsels will prevail and that once the corner is turned employment and energy will revive at the bidding of lower costs and better prices. Turning now to our shareholders' funds invested in tile business of the bank, the capital remains the same at the substantial sum of £7,500,000. Last year we appropriated the sum of £250,000 as an addition to the Reserve Fund, which now stands at £6,150,000, making a total of capital and reserve fund of £13.650.000. This is your contribution to the loanable lands which the hank turns over in the service of Australian industry. With such substantial reserves and so large a capital, your directors have therefore decided that it is v.ser on this occasion to make substantial appropriations to contingencies accounts. You will recognise that the hank can only prosper in the prosperity of its customers, and that of the peoples in those countries, where it carries on its operations. While we all hope that the prices of our exports have reached their lowest level, it is not possible as yet to be assured that this is so. Proper preparations for contingencies must be made while this is still practicable. As a further step towards maintaining the iesources of the bank in a condition leady for any emergency, so that it may lend a strong hand in the lestoration of Australia and give assistance in other fields where it operates, your directors recommend the payment of the dividend for the last quarter of the year at the leduced rate of 9 per cent, per annum. In conjunction with the payments for the other quartets this represents the moderate icturn of 5.36 per cent, on the total of Capital and Reserve Fund. By these two proposals yout directors will be able to maintain the reserves of the bank in a satisfactory position DEPRECIATION OF POUND. A matter of cardinal importance in considering the figures of the balancesheet, and more particularly the figures of gross and nett profit is that of the depreciation of the Australian pound. Your directors have not overlooked this, and nt the recommendations referred to above, the fact that the £ Australian is at a discount compared with sterling has been taken into consideration in the allocation of nett profit. It is necessary to draw special attention to this, as nowhere have we noticed any recognition of it in the published accounts or reports of companies, firms, etc. The outside market for exchange which, although statements are frequently made to the contrary, is free of any control by the banks, is operating at present on a basis round about £llO Australian being equal to £lOO sterling. Some authorities state that on the question ot purchasing power parity the £ Australian is at a greater discount than this, being somewhere between £l'2o and £125 Australian for £lOO sterling. At this juncture it is probably not necessary to go further than to accept the rate ruling in the outside market, and that is a depreciation of 10 per cent. To give you a simple illustration, this means that those in control of Australian finance should recognise that a profit of. say, £lOO,(XX) in pounds Australian would be worth £90.000 sterling if the depreciation of the Australian currency is 10 per cent., and £BO.OOO sterling if that depreciation is 20 per cent., and the paper profit should be dealt with upon that basis. Such a discrepancy between the Australian pound and the sterling money that has so Jong been a synonym for security and strength, brings out again the element of fluctuation in business that has been all too evident of late. Australians are being urged to “stabilise” prices, wages and business, but the business situation is what many million of people make it by their individual actions. We in Australia are n very insignificant part of the world of business. Some critics are varying flic general cry for stability by accusing the banks of “pegging” the exchange rates at a point which is above the true value of file pound Australian in terms of currencies on a gold basis, such as sterling and the dollar. It is very flattering to hear people attribute to the banks power to control the exchanges. The true position. however, is far different. The rates quoted by the banks do not control the exchange market in Australia. There is a very largo body of exchange operations carried on entirely outside the blinks. The rates at which these arc transacted are not necessarily the nites quoted by the bunks, and operatois in the

open market are free to vary their rates from time to time. The rates quoted by the banks are those at which the banks are prepared to do business; In normal times they serve to balance the buying and selling of drafts and transfers by the banks’ customers, bank rates in buying and selling being separated only by a fine margin, out of which the bank must pay expenses and find its profit. The rationing of customers, by which of late banks have sought to restrain the purchase of sterling, has been due to a reluctance to raise lie rate at winch H'e < omm iniveut: Government buys the London money needed to pay the overseas interest and other national charges. In this they have responded to the lead of the Commonwealth Rank and have honoured the exchange agreement. It seems to be generally overlooked by those who ask for higher rates of exchange, that every additional one per cent.' of discount to which the Australian pound sinks involves additional taxation in Australia amounting to £360,000 per annum. This is the added exchange cost to our governments of providing interest in sterling on our external loans. INTEREST RATES. Simultaneously with the claim that exchange rates are too low one hears the suggestion that interest rates are too high. High rates of interest are not an advantage to banks. They are in fact, a disadvantage in that they limit severely, especially in a time of falling prices, the bounds of profitable borrowing by customers. High rates of interest were, nevertheless, necessary at a certain phase of the trade-cycle as a means of damping the excessive zeal to borrow of folk who calculated on a continuous rise of prices and of capital values. When that function has been fulfilled it is usual, in the next phase of the cycle, after costs have fallen, to lend money for short terms at low interest as an incentive to the revival of enterprise. In almost all countries except Australia and New Zealand, this phase of the present recession has arrived. Among the reasons for the anomalous position of credit in these Dominions are the unsound schemes of public finance advocated in some quarters and the persistence with which governments are leaning upon the banks to finance policies and commitments plready responsible for the severity of the local recession. Their insistent demands foi credit have absorbed funds which should have been held in readiness to aid. at lower interest charges, the revival of enterprise when prices turn for the better, and confidence returns. To make matters worse, the expenditure of those funds on relief works and on the payment of salaries anJ wages to establishments built up by boom time activities has supported standards of living and an internal price-level which the earning power of the general taxpayer cannot long sustain. That expensive support retards the fall _ in costs imperatively necessary to bring back to our exporting and home industries the incentive and hope of profit. “IMPOSSIBLE POSITION.” As a necessary result of the procrastination of the legislatures to face the situation that confronts us, the position is rapidly becoming worse. When I addressed you twelve months ago. we could have avoided serious trouble bv a reduction of between 10 per cent, and 20 per cent, in our costs and possiblv within a period of three to five rears. could have passed through the depression. By this time we would have been on the road to recovery. The retrogression since has required us to face a lengthened period of trouble, and a more severe reduction in costs. Further delay will make the process of readmstment still more difficult. As an illustration of the impossible nosition in which the legislation existing in the Commonwealth places nur producers. I nrny give three instances out of many where wo have obtained figures, based upon actual results, showing the costs of production ns against the returns received therefrom. It must always be borne in mind that such figures vary in everv district, but these three instances will serve to draw ntention to the impossible position which has to be rectified. Tn three different districts in which we have branches, we find that the cost of wool production ranges from 9id. to lljd per lb. Wool from these districts at the date these calculations were made, about two months ago. was averaging little over Sid per lb on the sale floor. It is easy to see that the reduction that will have to be made in costs in these instances amoiiifts to some 30 per cent. The wheat farmer is in a similar position, and the manufacturer of our secondary produce as well as our orimary producers, must be given relief until a point is reached at which he can export his shrplus outnut at a profit in competition with his rivals overseas. Australian Treasurers have sought to meet their commitments hv tbe imposition of fresh or increased taxes, but it would seem that the point has been reached at which increased rates of taxation will not produce more revenue. In view of the excessive costs of production, many concerns and individuals will he unable tn pay the taxes even though demand is made for them and pressure to collect such taxes will he of no avail, but will tend to aggravate the situation. Australia is rapidly becoming, if it has not already become. the most heavily taxed country in the world in order to supnort its unsound and uneconomic systems of regulating trade and industry and of developing tlie country in excess of economic possibilities. The burden is now becoming overwhelming, and unless it is reduced considerably at an early date, will bring disaster upon tlie Treasurers who have imposed it, ns well as upon those on whose shoulders it has been laid. As disclosed by the published bank returns, the advances of the Bank of New South Wales in New Zealand, for the quarter ended 30/0/30. were running at about £6,600.000. as against average total deposits with the hank in the Dominion of some £6,300,000 during the same period. The same returns show that compared with the figures for quarter ended 30/9/29. the advances of this bank had increased £701.000 during the twelve months, despite a decrease in deposit figures. These figures fully support the reference in the president's speech, to the fact that New Zealand has shared proportionately with Australia in the assistance which Ims been rendered bv this bank to its customers during the present trying conditions