Bank of New Zealand

Nelson Evening Mail, Volume LXVI, 17 June 1932, Page 7

Bank of New Zealand

CHAIRMAN’S ANNUAL ADDRESS REVIEW OF THE FINANCIAL POSITION CAUSES OF PRESENT POSITION AND MEASURES REQUIRED FOR REHABILITATION

COURAGE AND UNSELFISHNESS NEEDED (By Telegraph.—Press Association.) WELLINGTON, This Day. The annual meeting of the proprietors of the Bank of New Zealand was held to-day. In the course of his address, the chairman (Mr Oliver Nicholson) expressed regret that it had fallen to his lot to present a less favourable report than had been presented by his immediate predecessors in the chair. He then proceeded to deal withthe year’s operations of the hank itself and the general financial position and prospects, as follows:

I regret that it has fallen to my lot to present to you a. less favourable report than has been presented by my immediate predecessors in the chair. The balance sheet is expressed in New Zealand currency and no special provision has been made for the difference in the currency value of the net assets in Australia caused by the adverse exchange rate, as the appreciation in sterling assets in London is greater than the depreciation in the net assets in Australia in so far as these are affected by the exchange rate. Shareholders’ funds in the Bank are: Paid-up Capital (exclusive of £529,988 of Guaranteed Stock) £6,328,125 Reserve Fund 3,575,000 Balance of profit carried forward 395,056 £10,298,181 In addition, there are internal reserves which, although less than last year, are still most ample. Notes of the Bank, in circulation at 31st March amounted to £4,062,762—a higher figure than usual owing to increased demand consequent on the Easter holidays. The average circulation for the year was £3,523,753. The Government has extended, until 10th January, 1935, the period for which the note issues of the hanks in New Zealand are to continue as legal tender, subject, however, to the proviso that if, by an Act of the General Assembly, a central reserve bank is established in New Zealand, such notes shall cease to become legal tender not earlier than six months after such Act has been passed. Deposits show a decrease for the year of £758,842. . Non interest hearing deposits are less by £203,290; interest hearing have increased by £734,204; and Government deposits have been reduced by £1,289,758. It is rather amazing that, in an enlightened country, there should he so many opinions expressed to the effect that too much money is locked up in bank deposits to the detriment of its usefulness. One would expect it to he obvious that hanks could not afford the interest and other expenses of deposits unless use was made of the funds so supplied. They are, of course, used in malting advances to those in agriculture, manufacture and trade. •vA decrease of £688,380 is shown in the item “Bills Payable and Other Liabilities,” a great portion of which is due to a transfer from contingency account (which is included in “Other Liabilities”) to meet the heavy fall in the market value at September last 8f our investments. These investments, however, have since (with the exception of our holding of New Zealand Government securities) more than recovered the amount written off in September, but we have not thought it necessary to restore the amount withdrawn from the Contingency Account. The latter account has also been drawn on to provide for our losses resultant from the earthquake in Hawkes Bay in February, 1931. There still remains a substantial balance in Contingency Account

The decrease of £2,746,893 in advances and hills discounted reflects the depression through which the country is passing. There has not been much demand for advances of a safe nature, and we have met all legitimate demands of .our own customers. Many of onr farmer customers are unable to make ends meet; in addition to assisting them to the limit of safety we have made many concessions in interest rate, indeed, frequently not charging any interest at all. Owing to prevent uncertain values it has been difficult to assess (lie measure of provision required to cover losses on bad and doubtful advances, ft is felt, however, that our assessments have been made on a most- drastic basis.

FAR-SEEING POLICY JUSTIFIED It has been the policy of the Board to build up the amount of undistributed profit carried forward from year to year for the purpose of making a provision for the maintenance of the usual distribution to shareholders when times of stress are experienced. It was foreseen that sooner or later these times would inevitably arise, and unfortunately the year under review has come within this category. The accumulated balance of profits carried forward from 31st March, 1931, was £626,001, a sum far greater than is shown by any other bank in Australia or New Zealand, indeed greater in proportion than that of most British banks. Under the bank’s deed of settlement it is .provided that the balance of profit carried forward each year to the Profit and Loss Account shall he held “for the purpose of equalising future dividends.” This year the dividend has been fixed at 14$ per cent._ on the ordinary shares instead of being declared as a dividend of 13$ per cent, with a bonus of 1 per cent, as heretofore distributed. Shareholders, by reason of tlie very 71'arge amounts carried forward in previous years, have not had distributed to them by way of dividend the full amount then available for the purpose, and it appeared to the hoard that as full provision for the yeafr had been made for all ascertained contingent and possible losses, it was its bounden duty, in view of the provisions of the deed of settlement, to make this year a partial distribution of such accumulated profits so as to enable a distribution of a similar amount to that made in the last few years. There are 6976 holders of ordinary shares in the Bank. Of these 2445 share* holders each hold 100 shares or under, and 1384 hold between 101 and 200 shares. Many of these shareholders are elderly people of limited means to whom every pound of income is of importance.

PAYMENT OF DIVIDENDS Last year the final dividend and the bonus wore paid in accordance with the shareholders’ resolution in the currency of the country in which the shares were registered. Some of our shareholders on the Australian registers took exception to payment being made in Australian currency, and their complaints were submitted to counsel, who advised that distribution of profits must be made only in New Zealand currency. Australian shareholders were thereupon paid the premium which New Zealand money was worth in Australia, which adjustment, I feel sure, will meet with your approval. It is a matter of regret that shareholders on the London register will receive their dividend in New Zealand currency, but in view of the legal position no other course is open. The final dividend, which will ho at the following rates, will be payable ip Wellington to-morrow, and at, the various branches on receipt of advice: — “C” Long-Term Mortgage Shares, 6 per cent, per annum. “D” Long-Term Mortgage Shares, 71, per cent, per annum. Preference “B” Shares, 10 5-33 per cent, (making 13 2-11 per cent, for the year). Ordinary Shares, 7§ per cent, (making 14-J per cent, for the year). In order to obtain a true perspective of the rate of interest earned by the bank, consideration must be given Id the amount of the effective funds of the shareholders employed in earning the distributable profit. On this basis the net profits augmented by the sum taken from the amount carried forward in previous years represents a rate of interest not in excess of the ruling rate prevailing in the ordinary field of investments. It is very interesting to note the extent of the amount paid during the year to the Government by way of dividends and taxation. This amounted to £644,248, viz.: — £ Dividends 245,312 Income Tax 239,867 Land Tax 2,409 Note Tax 156,660 £644,248 as against £594,263 paid in the preced ing year, made up as follows: — £ Dividends 245.312 Income Tax 196,524 Land Tax 18.863 Note Tax 103,564 £594,263 INTEREST On Ist August last fixed deposit rates were reduced by { per cent, on three, six and twelve months’ deposits, and by i per® cent, on 24 months’ deposits. The minimum overdraft and discount rates were reduced on Ist November by J per cent, and there was also a widespread reduction of rates that were in excess of the minimum. Parliament 'recently enacted that there should be a compulsory reduction of interest rales by 20 per cent., but the banks arc exempted, as they had given an assurance that they would make a further reduction of i per cent, on advance rates, which will lake effect on 31 st August. Owing to concessions made to customers who,, under existing conditions, arc unable to make ends meet, the reduction already made has brought down the actual average rate on our advances in

DOING ITS SHARE The profit for the year was £587,023, being £258,790 less than for the previous period, and £361,511 less than for the year which ended 31st March, 1930, a reduction of 38 per cent, as compared wit!} the 1930 figure. It will be gathered from these figures that this bank is shouldering its full share of the effects of /the severe depression | which has come upon the country. Our large connection with the pastoral industry, which is suffering more than any other, has necessitated our providing for considerable present and prospective losses, but we are not without hope from our past experience in this direction that much of the provision made will, on any material improvement in prices taking place, be recovered. There is an increase of £590,742 in the item “Coin, Cash Balances and Deposits with Bankers.”

Money at call at short notice, Government securities and other securities in London, bills receivable in London and in transit are less by £91,104. Investments are distributed as follows : British and New Zealand Government securities and securities of local bodies £8,212,715 Australian Government Securities £3,647,732 The market value of these investments is largely in excess of the above figures, and the face value is still larger, so that if we do not require to sell the investments before maturity there will bp a very considerable surplus on these items. Our holding of New Zealand Government securities was increased by £1,215,425 in the form of Treasury bills, and we have agreed to make further and very substantial advances to assist the Government through its present financial difficulties. You will observe that our most readily realisable assets total £24,199,749—a very strong position indeed.

New Zealand for the half-year ended 31st March last to 5.79 per cent., so that when l!ic further reduction comes into force we shall probably not earn 5$ per cent., a concession, as compared with 1930, of more than the 20 per cent, stipulated for in tile compulsory provision just mentioned. It should he borne in mind that interest is calculated only on the daily balance of overdraft. and not oil the amount the bank agrees to lend —a very decided advantage to most customers. The Hank of England rate has varied since Ist April, 1931, as follows: 1931 Ist- April 3 per cent., 14th May 2$ per cent., 23rd July 3$ per cent., 30tli July 4J. per cent.. 2ist September 6 per rent. 1932 38lh February 5 per cent.. lCtli March 4 per cent., i7lh March 3$ per cent., 21st .April 3 per cent., 12th May 2: per cent. 1 here has not been any alteration during the year in the late for telegraphic transfers to London, though there have been some (rilling adjustments of the rates for bills, consequent on (lueiuations ill lhe Bank of England rate. EXCHANGE RATES In January last, iu order to ensure that tile Government and local bodies should be in a position to obtain exchange i"o meet their obligations in London, the Government instituted a system of licensing of exports, under which it was provided that ihe proceeds of exports should be handled by tiie banks The action of the Government has been strongly condemned by exporters, who contend that exchange should be left free to find its own level. Doubtless they expected that in a free market, caul with tlie knowledge of the unusually heavy obligations of the Government and local bodies in London— estimated at fourteen millions for tlie year—the rate, by skilful manipulation, could be forced up from 10 per cent, to 25 per cent., or even 30 per cent., or 40 per cent. Such rates would, of course, have necessitated an equivalent increase in soiling rates, thereby casting a most onerous burden on public finance, which would require to bo met by increased taxation. Thu banks made no alteration in rates because, with the exception, of one bank, if was l’elt that, having regard to their balances in London, and tlie prospective surplus of exports over imports,for (Inseason, no change could be justified. It is certainly not the business of tlie banks to adjust, exchange rates to meet variatious in the price of produce. Nor can they be influenced by the rates prevailing in other countries which are our principal competitors in the London market. Neither the Government nor the banks could view with equanimity tlie heavy depreciation of New Zealand currency which would result from any considerable increase in buying rates on London, and the wisdom of this is borne out by the very satisfactory terms which the Government obtained for its five million loan raised iu London in April, Further, control of the exchange enabled the banks to prevent tlie High 1 , of capital from the Dominion, also to prevent New Zealand’s funds in London being used for the benefit of Australia. It may be added that it would pay this bank well to see the rate on London increased to 25 per cent., but the interests of the country must be regarded as paramount.

TAXATION OF BANKS It has been mentioned on previous occasions that tlie system under which the banks are assessed in New Zealand for income tax, has for many years been extremely unfair. At present, owing to the abnormal amount of bad debt incurred, it is operating with particular hardship. It will come as a surprise to most people to learn that banks are not. permitted to include bad debts in the various deductions allowed in assessing their taxable income. For instance, if the New Zealand profits for the year were one million, or lialf-a-million, or none at all, the same amount of income tax would be payable; or to put it another way, if wc had earned 7 per cent., on oyr advances no greater amount of taxation would be payable than if wq earned only 5$ per cent. Were we taxed as a joint stock company we would be assessed on our actual earnings, bad debts being deducted. Irresponsible persons look upon a reduction of 1$ percent. in interest rate as being somewhat trilling, but in tlie case of this bank it represents a reduction of profit by about £IIO,OOO a year. Such reduction of profits, as I liave said, would, under tlie present system of taxation imposed upon banks, carry no reduction of taxation. Last year we paid the Government £49,985 more taxation than in the. previous year, and our total rates and taxes on the whole of our business shows an increase for tlie year of £56,950. I may add that of this year’s profits of £587,023, no less than £310,925 was represented by interest from free of tax British, Australian, and New Zealand government securities. These securities, of course, carry a lower rate of interest than those that arc subject to tax. It is recognised that in times like the present taxation must necessarily be heavy, and that wealthy institutions must expect to be heavily burdened. There must, however, be a limit to excessive exactions.

The outstanding event in the financial world last year was undoubtedly Britain’s abandonment of the 'gold standard on 21st September. What the ultimate effect of this will be it is difficult to forecast, but it is inevitable that we fall in line with what Britain does and accept with the best grace possible whatever readjustment may become necessary.

UN RE ASO N A BLE CRITICISM It would perhaps be not out of place for me to refer to the adverse criticisms, which have been so persistently levelled at the banks under present conomic conditions. One would gather from these criticisms that, in the opinions of the critics, the banks are to blame lor many of the problems confronting the dominions at tiie present time, that they are oblivious to the country’s best interests, and that they arc only solicitous for Lhe earning of the largest possible dividends for their shareholders. Such ,is not the case, as< all banks lull realise that the prosperity of the country is closely interwoven with their own success and that it is their particular prociiice to see that financial affairs arc conducted upon those sound lines, which their many years of experience indicate are essential for its safety and prosperity, 'they cannot be expected to stand by unprotestingly when sound financial principles are being violated. It is essential that there should always he a close cooperation between the Government and the banks in all schemes of financial policy, if national difficulties capable of practical solution are to be surmounted as speedily as possible. Critics and other people of the Dominion must concede, that if it had not been for the financial GET THIS FOR COLDS IT’S A GREAT MONEY SAVER Hundreds of people throughout New Zealand now make their own cough and cold remedy. They use 11EENZO (1 loan’s Essence). One bottle makes a pint, thus you get 8 bottles for the price of one. Add one bottle of 11 EENZO to water and sweetening as per (he easy directions. The mixture thus made proves beneficial in all cases of coughs, colds and sore throats. 11 is warming, soothing and effective, free from harmful drugs and can he given to the youngest member of the family. One 2/6 bottle of IIEENZO makes a pint, saving at least IS/-. Isn't that worth having these days?

resources and strength of the banks to meet the requirements, not only of the Government, but also of their customers generally during tlie past year —the position of the Dominion and its people today would have been in a very deplorable state indeed.

LOAN ON LONDON MARKET The Government raised a 5 per cent., loan of five million in London last April at an interest cost of about 5$ per cent. The issue was very favourably commented on by the press, but unioiTiinaiely it was made just as a sudden and quite unexpected cessation of the demand for gilt-edged investments set in. Tlie underwriters were left with 47 per cent, of the loan, but on tlie market improving, this balance of the issue was quickly absorbed. Four millions of the loan is to be utilised for repayment of that amount of treasury bills, maturing iii London Ibis month and one million for public works. The Dominion lias every reason to he Satisfied with the result of the loan, which reflects the high credit New Zealand enjoys on the London market. The exceptionally low rates for money now ruling in London should enable the Government to finance there temporarily on treasury bills, thereby obviating the necessity for remitting funds from New Zealand at the present high rate of exchange and also saving a considerable amount in interest. It must not, however, be overlooked that the recent riotous occurrences iu Dunedin, Auckland and Wellington have, for the time being, had a disturbing effect on tlie country’s credit on the money market in London.

Tlie efficient services rendered by the staff during the year are deserving of our acknowledgement and appreciation. Naturally, the trying times the country is experiencing throw extra responsibility and work on Die chief executive officers and branch managers. The annual contribution to the pension fund, which is based on the salaries paid, has been made as usual, the amount being £36,103.

Having referred to matters connected mainly with the conduct of the bank’s operations, I will now deal with the outstanding features of the present general situation in the Dominion, especially in view of the fact that not only this bank, but also the other banks, are called upon to render the greatest financial assistance within their Resources to trade and industry in times of stress and difficulty as are now being experienced.

THE DOMINION’S PRESENT POSITION The Dominion’s present position may bn attributable to the result of two definite causes, viz., (a) A greatly reduced national income. , (b) An increased annual national expenditure. They mean on the one hand that the income of the country has seriously diminished and on the other hand that its financial requirements have greatly increased. In other words, we have less money from income wherewith to meet greatly increased public charges and standing debts. I do not think it necessary to furnish statistical figures in proof of this assertion, as these have been furnished from time to time through other channels. The serious fall in income is due chiefly to (be unprofitably low prices for produce. The wool position is so serious that unless a substantial improvement in prices sets in, sheep-farming in New Zealand will be greatly restricted, as itis unreasonable to expect farmers to continue in any industry at a loss to themselves. As this industry lias been one of the main avenues of the Dominion’s wealth, any restriction in the direction of its development will materially reduce the amount of national income in comparison with previous years and retard the progress of tlie country rehabilitation. Our sheep flocks will diminish iii number and our lamb export trade in frozen moat will be materially lessened. It is. hoped that some means of assistance to sheep-farmers will he devised to encourage them to continue in an industry in the success of which the people of the Dominion are so vitally interested. Dairy produce is very low in price, and it- is probable that adjustments will have tn he made to a permanent lower level of land values to meet such conditions. Production costs will have to be further reduced, which requirementcovers interest and all other charges on the industry, which obviously can only near charges within its earning power. The condition of a greatlv reduced national income has consequently brought about restricted trade, which in turn lias caused the present grave unemployment crisis. All avenues must be explored to remedv the position and tho channels of a further settlement- of a considerable section of,our population on the land and a vitalisation of secondary industries appropriate to the Dominion appear to he worthy of serious consideration and support-. Ag regards oiu* trading relations abroad, much good is expected to result from the British Em pire Conference to ho held at Ottawa in July next. It is fervently hoped that there will be achieved at this Conference through sacrifices made for the common weal an Empire trading understanding and strength which will prove beneficial in the future to all the units of the Empire. It- is clear that Great Britain must be the main outlet of our country’s primary products, and wc should sec that the goods wc require from abroad tire purchased from this source in preference to any other.

ESSENTIAL REQUISITES FOR REHABILITATION Briefly summarised, the following appear to be essential requisites for the country’s welfare and rehabilitation. (1) Greatly reduced costs of production to meet world-wide competitive conditions and further increase in the volume of our exports and the cultivation of further export linos. (2) Restricted public expenditure under several headings, bringing Government expenditure within the limits of the country’s present resources. (3) The creation of a self-dependent rural community comprising the bulk of the population by their settlement on the land in small holdings. (4) A reasonable further establishment of industries appropriate to the country. Thus wc would secure a more balanced population so far as regards their occupation and employment and so remove a portion of the discontent now prevailing in the Dominion.

It is a matter for congratulation that wo have a Coalition Government, which is functioning with a mandate from the people to take all steps which may Inessential to bring about the Dominion’s financial stability and prosperity as speedily as possible. It has realised the problems which have to be faced, and in the exercise of the mandate so given it has seen the necessity of imposing taxation to a most onerous extent, of effecting rigid economies in public administration and of putting into operalion drastic measures which cannot bp justified save through the exigencies of Hie crisis through which the country is passing. In so acting, it has incurred the displeasure of many sections who resent being called upon to bear a share of the. financial burden which they selfishly consider should lie placed on other shoulders. THE GOVERNMENT’S DIFFICULTIES i’eople are too prone to blame the Govi i imionl tor the Dominion’s present position and to altrilmle (lie same to the lavish borrowing poliev and extravagant expenditure of its ’predecessors. I hey forget that such policy and extra-

vagance (emulated as well by all local authorities) were but the reflection of their wishes and that they materially profited thereby, while they were in full operation. As they have shared in the benefits arising .during the period of inflation and prosperity, so now they should uncomplainingly and courageously face the hardships resulting from deflation and adversity. The Government should be extended support and helpful co-operation in its earnest efforts, and not be subjected to captious criticism and active as well as passive opposition and obstruction.

SACRIFICES TO HELP THE UNEMPLOYED

Especially should the Government bo commended in its honest attempts to solve partially, with the financial resources which may from time to time become available, the problem of unemployment—a state of affairs brought about. through no fault of the majority of the unfortunate persons in that predicament. Sacrifices must be made ungrudgingly by all who have the necessary means, as well as by those in employment, to meet the plight of this unfortunate section of the people and tlie extent of these sacrifices must vary according to capacity to bear them.

RESOLUTE COURAGE NEEDED, WITH UNSELFISHNESS

Until the world’s economic problems are satisfactorily solved, every endeavour must be made to put the country’s financial position in order by the practice nationally, locally and privately of all reasonable and requisite economies, by the balancing of the National Budget within a reasonable period of years from sources other than borrowing and by finding evenues of employment for those who are in need of the same. This being achieved, we shall be able as soon as tlie world’s conditions improve, to reap the full advantage of the improvement and once more experience the blessings of prosperity. The position must be faced with a resolute courage and an unselfish spirit, and every endeavour must be made to foster during the period of rehabilitation a spirit of goodwill in all classes of the community which will be extremely helpful iu tho solution of the country’s difficulties. When this happy result takes place, let us trust that the lesson of the depression will not be forgotten, but that work and thrift will take tlie place of the somewhat extravagant style of expenditure which has been the outstanding feature of past years.