Bank of New Zealand

Nelson Evening Mail, Volume LXIV, 19 June 1931, Page 3

Bank of New Zealand

CHAIRMAN'S REMARKS AT ANNUAL , MEETING

THE FINANCIAL POSITION REVIEWED

RELATIONS OF GOLD TO CURRENCY

(By Telegraph—Special to "The Mail”)

WELLINGTON, This Duv

In moving the adoption of the report and balance-sheet at the annual meeting of the proprietors of the Bank of New Zealand to-day, the chairman of the board of directors (Mr Watson), after apologising for the absence of Sir George Elliott, who left on a visit to Great Britain in March last, drew attention to items in the balance-sheet that called for special mention and remarked on matters incidentally affecting the Bank. He proceeded:—

“There lias not been any change during the year in the capital of the Bank. It is proposed to transfer £25,000 from the year’s profits to the reserve fund, making the latter £3,575,000. This is the smallest addition to the fund for very many years. The balance of profit carried forward will be increased by £2,845. Shareholders’ fund will thus amount to

LIABILITIES

Paid-up capita? (exclusive of £529,988 of Guaranteed Stock £6,328,125 Reserve Fund ••• 3,575,000 Balance of profit carried forward 626,001 £10,529,126 “In addition to these funds, we have ample internal reserves built up over a long period of years. It will be thus apparent that the Bank is in a very strong position. LONG-TERM MORTGAGE DEPARTMENT

“In November last we placed in London on satisfactory terms an issue of £500,000 five per cent, long-term mortgage debenture stock, maturing 15tli November, 1940. The proceeds of the issue were used to repay advances which had been obtained from the banking department of the Bank. But few loans were made during the year, only a limited amount of funds being available.

NOTES IN CIRCULATION “Our notes in circulation at 31st March amounted to £3,679,957. The average circulation for the year was £3,526,197. All Banks here issue thenown notes secured byl a holding of onethird in gold, and two-thirds in Government securities. Over and above this backing, the notes are a first charge on all the assets of the individual banks concerned. There can therefore be no question as to the safety* of the notes, nor can there be inflation or deflation, as the notes in circulation are simply those required by the public for their actual needs This is shown by the steadiness of the average circulation of all the banks for the past five years, as follows: 1926- £6,673,595 1927- 6,453,265 1928- 6,372,599 1929- 6,445,446 1930- 6,102,022

“When trade is brisk, works are in progress, or prices are high, the circntiou is naturally larger than in a' dull period. The gold and other securities held would enable the Banks to increase the circulation to more than double what it is, were that necessary. The direct note tax was raised as from Ist July last from £3 per cent, to £4 10s per cent.; in addition to this direct tax, the banks pay income tax, at present 15s per cent, on'the amount ef notes in circulation and on the gold and Government securities .backing the issue; a total tax of £5 5s per cent. Cost of the note forms and all working expenses in connection with the circulation are borne by the banks, so that the whole £5 5s per cent, goes to the Government.

“Practically the whole of the profit on the note issue when the tax was 3 per cent, went to the Government, consequently the increase of I2 per cent, was totally unjustifiable. The. banks felt that this increased imposition should be met by some means, and therefore increased the half-yearly charge to customers for keeping accounts by ss. This increased charge,still leaves this Bapk to luce a loss of £IO,OOO to £12,000 a year, •as about 30 per cent, of our circulation is due to the operations of the Government accounts, on which no charge is made.

“The relations of gold to currency have been in recent years subjects of many and various discussions, throughout which it may be noted that bankers and other experienced men have supported a backing of gold as security, whilst others have considered that the note issue of a country could bo safely based on the security of the State without any tangible support. “Very serious conditions have been brought about at various times and in different countries by giving effect to the latter view. Presumably, there, might be no limit to what a Government might consider the value of State security, and in recent years examples have been supplied by France and Germany of the evil consequences of State mllation Franco paid out State notes until a . franc was worth in sterling only 0110ninth of its pre-war value. Subsequently the franc was stabilised at about onefjfth of its pre-war value, and debts and contracts incurred previously to these charges are now considered to have been repudiated 10 the extent oi of their original worth Germany went still further, and to a- large extent destroyed the wealth of her neople by rendering ' almost valueless all State and private commitments. Quite recent happenings in Australia ill connection with its note currency arc so well known that 1 need only allude to them. It is obvious that Fiduciary issue by a State, without cold backing, while inflating prices temporarily, are not adaptable for payment of imports, or other exchange purposes. These remarks are sufficient to make it evident that the currency of the Dominion is conducted 011 sound and sate principles, is of such elasticity as to cope with the requirements of any expansion in trade, and is very remunerative to the State. The proclamation constituting notes legal tender expires in January next. Doubtless, the Government wil see the wisdom of extending the period of two or three years to permit ot a return to normal eonditions. DEPOSITS

“Our deposits at the balance date were £1,572,923 less than at 31st March, 1930. SYDAL A GOOD INVESTMENT Why is 3d known as the threepenny bit? Probably owing to the coin testing methods of Aberdeen. —Never mind ! A threepenny bit.will buy three penny stamps, and these sent to Sydal Proprietary, 75, Kent Terrace, Wellington, wil secure a sample of Sydal. Send for one to-day. A good investment!

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ADVANCES AND BILLS DISCOUNTED

BANKING SYSTEM IN NEW ZEALAND

The shrinkage is in current account balances, which are down by £2,623,492. Fixed deposits havo increased £1,593,072. Government balances are less by £542,503.

BILLS PAYABLE AND OTHER

“In this item there is a decrease of £525,038, the major portion of which is reduction in amount of drafts on London outstanding. The remainder of the decrease is represented by items of no special significance.

PROFIT AND LOSS ACCOUNT

“Tlio profit, for the year was £845,814, being £102,720 less than for the previous period, the decrease beinsr due to increased taxation, to higher cost of deposits, increase in bad debts, and to lessened earnings on our short-term investments in London. It is, of course, not to be expected that a new record of profit can be made every year—lean periods come sooner or later, and, in common with other financial institutions, wc have suffered from the effects of the prevailing depression. Wc anticipate that our losses from the earthquake and resultant fires in Hawkes Bay last February will aiftount to less than £IOO,OOO. When these losses have been definitely determined, the amount will be debited to the Contingency Fund, in which there will remain a very substantial balance. Coin, cash balances and deposits with bankers amounting to £7,106,498, showed an increase of £342,897 on last year's figures. Referring to money at call and short notice, Government securities and other securities in London, bills receivable in London and in transit, the chairman said the reduction ol £823,361 was due to lower values for the Dominion’s produce.

In regard to investments, lie said: “British and New Zealand Government securities and sneun’tios of local bodies, £8,681,893. These items arc well under realisable vplue. Australian Governmont .securities, £3,548,443. These also stand in our books at less than market value.

“These items together show a decrease of £709,374, over £400,000 of which is due to reduced imports from Britain,’' proceeded the chairman. “There has been an active demand lor money, and wc have been able to meet all legitimate applications from our own customers, hi times like the present, it is necessary to / scrutinise all requests for accommodation with the greatest care, not only to guard against the possibility of loss, but also to see that our funds are not being used for speculative purposes, or for purposes alien lo proper banking. 111 the depressed conditions prevailing, we have felt it to be our duty to meet our customers’ needs right up to the limit of safety. All advances on our books have been most carefully scrutinised, and, bearing in mind that recovery from the present depression may be slow, all bad and doubtful debts have been amply provided for.

“The banking .system of New Zealand has lieeii evolved during more than 90 years of practical acquaintance with the country’s requirements. It differs from the British system inasmuch as it has to deal largely with aiding development of land, as well as assisting in file establishment and encouragement of all other industries essential to the needs of a young country and its growing population. It will be admitted that had the banks conducted their operations strictly in accordance with the lines of British banking, the Dominion would not have made anything like the progress it has. and therefore it may he iuslly claimed that the system lias met the needs of tile country, and has enabled the banks to assist their customers in weathering many a storm with minima of ill effects.

DIVIDEND “The dividend and bonus, which arc pctyablo in Wellington to-morrow and- at the various branches 011 receipt of advices, will be at the same rates as those of last year. No change by reason of present abnormal exchange rates, is being made in the customary method of paying the dividend and bonus, that is lo say, they will be paid in the currency of the country in which the shares are registered. The Bank’s Deed of Settlement permits of this. TAXATION

“Taxation paid to the Government of New Zealand in the year under review was £54,109 more than in the year precious. The total increase, in rates and taxes on the whole of the Bank’s business was £06,837. There is no doubt that general high taxation drives money and credit out of a country, but by this l do not imply that Now Zealand has, until now, suffered in such a manner; 011 the contrary, it is well known that large sums have been transferred from Australia and invested here. 'Flic causes of these remittances wore undoubtedly the more stable conditions which obtain here, fears of higher taxation, and probably exchange, ft has been held by eminent authority in London that money and credit cannot ordinarily be removed from a country, but individuals can, and have been able to, transfer their assets from Australia to other countries, by various methods, and lo enrich the places of receipt by making Investments there. It is also clear that subtraction by anv Stall- of the people’s wealth, either by inordinate taxation, 01 by high death and gift, duties, to pay for expenditure overseas, which cannot he met by excess of exports over imports, must impoverish that Slate to the detriment of all within it. Income tax was increased last year by 10 per cent., in voicing the Bank in an additional ini post of £17,865. As some of you know, banks in New Zealand are taxed not on

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ulint they aclualiy earn in the Dominion, but on what, under an arbitrary and now unfair system, they are. assumed to have earned; the result being that, as compared with what we have to pay if taxed as a joint stock company, we were mulcted last year to the year of no less | lain an additional £58,841.

WIIAT THE STATE DERIVES During the year, £594,263 was paid by the Bank to the Government of New Zealand by way of dividends and t.axn(ion, viz. : - Dividends £245,312 Income tax 196,312 Laud tax 18,863 Note lax 133,564 £594,263 BOARD OF DIRECTORS

“Sir George Elliot resigned our chairmanship before leaving for the Old Country, and my colleagues did me the honour of electing me as his successor. Sir George occupied the chair for nine years, and discharged the duties of the position with advantage to the Rank and credit to himself. * regret to announce that Mr William Recce, who was a member of the Board, tor fifteen years, died on 17th July lust. Mr Recce was a most agreeable colleague, and possessed of considerable knowledge of allairs. The Government appointed Mr Robert A. Anderson, C.M.G., of Invercargill, for the unexpired residue of Mr Recce’s term of office. Sir George Elliot and Mr .Anderson have been re-appointed to the Boird for a further term of threo years from 31st March, 1931. Ihe- term of office of Mr It. W. Gibbs, one of the two representatives of ordinary shareholders, expired in March last, and lit) was re-elected unopposed to the position. We again express our appreciation of the services rendered by the members of the London Board and the local directors in Australia. Last year I obtained eight months’ leave, and paid a visit to the Old Country, where, during mv stay in London, 1 was associated with the London Board. Our business there is conducted with efficiency , and one can ran Iv rail at. the ottice without meeting New Zealand customers who express gratification at the services and attention received horn the stuff. I was glad to liavu the pleasure of meeting and discussing affairs with Ihe directors in London, and. when in Australia, with Sir John Higgins ami Sir llenr.y Braddon. our directors there. CHIEF AUDITOR “Mr A. R. W. P. Green retired from the post of chief auditor after six years service in that capacity, and the Government appointed Mr A. L. llcmploii in his stead. Mr llemplon’s connection with the Bank lias extended over a period of 42 years, during which ho filled many important, positions, including those of Cliief Inspector and Assistant General Manager. STAFF “The Directors again express their appreciation of the work and conduct of the staff. The chief executive officers and branch managers have had an extremely trying time, and that condition will continue until a normal state of affairs is reached. A bonus, similar to that, of recent years, has been paid to members of the stall and other employees of the Bank. 1 fuel sure that, as liitiierto, this payment will meet with your cordial Approval.

RATES OF INTEREST "There has been no change in interest rates within the Dominion since voy were last addressed from this chair. Although the demand for money exceeds ihe supply, we hope that ere Jong it may he possible to bring about a reduction of rales, hut as the banks do not control interest rates, nothing can be accomplished in the way of reduction unless certain other important interests can be induced to co-operate. The Bank of England rale was reduced from 3 per cent, to 2i, per cent, on 14th May. It is to be hoped that the lower rate will tend to stimulate enterprise in the Old Country, though it is feared that the accumulation of funds in London denotes want of confidence in tlm industrial outlook. The Bank of England rate has little or no effect on rates here.”

[Other remarks made by the chairman will he found elsewhere in this issue under separate headings. |

SOUND POLICY PURSUED SUBSTANTIAL UnSHItVES BUILT UI» In seconding the motion Sir Harold Beauchamp said : “In the first place, l should like to congratulate Mr Watson upon, his appointment as chairman of this great institution. He has been associated with the Bank as a Director since 1894 and liis elevation to the chair places a. coning stone tn the long and honourable career tie has had as a banker, in fact, I think 110 may noev he described as the doyen of the Banker,s'of Australasia

“Secondly, I am sure you cvill la: gratified with the results achieved by the Bank for the past financial year, especially when you take into account the adverse financial and economic conditions with which we have had to contend, these conditions being of a worldwide character.

“Our ability to give tbo usual return to shareholders is in 110 small measure due to the sound policy tiiat lias been pursued in the past—tiiat is by building up substantial reserves and making the Jiiffest provision out of. profits for losses which the Bank has sustained from time to time. The dividend and bonus in Hie eyes of the public may appear largo, but 1 would repeat what lias been often mentioned at gatherings such as this—that return represents only a moderate one upon the actual resources ot the Bank, if these factors are considered, this return would represent not more than, say, Y per cent, upon the total of shareholders’ funds employed. In the address lo which you have just listened, Mr Watson lias dealt very fully with many matters, and 1 shall therefore content myself in adding a. lew general observations. The chairman mentioned Hint the exaggerated reports ot losses occasioned by the earthquake in the Ilawkcs Bay district have imwarrantedly damaged the financial credit of the. Dominion abroad, in this connection, 1 should like to say that the credit ot Hus country has undoubtedly also suffered icTssarily in the minds of the public abroad consequent upon our geographical association with Australia. Matters in that country have loomed so large in ihe public eye that 1 do not propose to make any further reference thereto.

“As to our present position and prospects, I have no desire to pose as a prophet nr indulge in any predictions, but I would observe that in my opinion when Hie tide turns it will be discernible firstly in tile United Stales of America, and secondly in Great Britain, ft seems to me that our present difficulties would gradually disappear if, instead of hoarding gold and endeavouring’to shut out imports, Tim United States were to appreciably lower the iariff and resume lending. and il Great Britain would give such a. measure of preference to oversea Dominions as would enable them to more .success I ally compete' with foreign exporters of produce to the Old Country. As to the adverse rates of exchange now ruling, we can look for no definite re-

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lief until values of produce improve, but, as I have already said, that relief in my opinion will come from without and not from within. In conclusion, 1 should like to quote a sluirt, extract front a wellknown American paper—Hie, ‘Saturday. Evening Post’ —which may have a tonic effect upon my hearers. That paper says: “ ‘The literature of all ages is filled with prophecies that never came true. When Edison exhibited 1 1 is incandescent Jn.ni]), the stocks of gas companies (Implied I it'Cause il was predicted there would be little further use for gas. National magazines predicted that the current business slump was nearing an end in the fall of 1920. 1 have before me statements made by business and political leaders dining all the business depressions of the fast generation. In every ease, very few prophets correctly forecast. cither the decline or the recovery in business. But i> has never failed that when times were good they got. bail, and alter they were bad .they again got good. Tile, surest tiling in the world is change."