BANK OF NEW SOUTH WALES

New Zealand Herald, Volume LXVI, Issue 20426, 30 November 1929, Page 11

BANK OF NEW SOUTH WALES

REDUCTION OF PROFITS.

DIVIDEND WITHOUT BONUS.

GROWTH, OF ADVANCES.

ADDITION TO RESERVE FUND

The report of the Bank of New South Wales for the year ended September 30, which ; was presented at theannual meeting in Sydney yesterday, states that the net profits, after provision for interest and payment of taxation, amounting to £350,086 15s 6d, and provision for bad and doubtful debts, etc., Was £994,824 16s 7d. To this is added the undivided balance at September 30, 1928, of £168,653 13s lid, making £1,163,478 10s 6d. Interim dividends at the rate of 10 per cent, absorbed £562,500.

Tho directors recommend payment of a quarter's dividend to September 30 at the rate of 10 per cent., £187,500, and the transfer to the reserve fund of £250,000, leaving £163,478 10s 6d to be carried forward.

A Press Association telegram from Sydney slates that tho directors' recommendations were confirmed by the meeting. Sir Kelso King and Mr. Charles Binnie were re-elected to the directorate.

Following is a comparison of the bank's results and appropriations for the last three years:— 1027. 1328. 1929.'" Brought forward £171,920 £170.010 £108,054 Net profit .. 1,220,247 1,184,943 991,825 £1,398.1.73 £1,355,55!) £1,103,479 To reserve .. 340,700 250,000 250.000 Dividend, 10 p.C. " 701,211 749,405 750,000 t Bonus, 2} i»,c; .. 155.58G 187,500 Carrjed"forward £I7O,GIG £108,654 £163,479 i/A bonus of 2 5, per cent, was paid in 1921 and has been added to the dividend annually from 1925 to 1928. The net profits in 1925 were £979,383 and in 1926 rose to £1,099,559. Following the amalgamation with the Western Australian Bank the 1927 profits established a uew record of £1,226,247.

PRESIDENT'S ADDRESS.

OUTLOOK FOR AUSTRALIA.

CAUTION AND ECONOMY URGED

At the Ordinary General Meeting of the Bank of Now* South Wales, held at the Head Office, Sydney, on Friday, 29th November, 1929, the Chairman, Mr. Thomas Buckland, President of the Bank, moved the adoption of the Report and Balance Sheet.

The following is a copy of his address: — Gentlemen,

In rising to move tho adoption of tho Report and Balance Sheet I shall review (he main items and compare them with last year. The movements, taken as a whole, are indicative of the conditions affecting us to-day. There is evidence of the marked drop during recent years in the prices of our staples, of the continuation of drought conditions in many districts, and of increasing costs the lack of-con-tinuity affecting industry and commerce to the disadvantage of all. Taking the less important items first, the .Note Circulation in New Zealand shows a small decrease.

Bills Payable at £7,284,000, represents a small increase of £84,000.

Bank Premises are £225.000 higher, and stand at £1,450,000. The increase is largely due to the New Head Office building, and the new building for our Bris--banc Branch, Unfortunately, the progress of the work on those two buildings has been delayed. We hope to be able to occupy the new premises ih Brisbane in about three or four months, arid to transfer our Sydney business into the roar portion of the new Head Office, building towards the end of January next. The old building at. the corner of George and Wynyard Streets will then be handed over to the contractors to be pulled down in preparation for the front portion of the new structure. The building of this is expected to take three years. We may, therefore, have to hold three moro .annual meetings in this room, as the administrative offices will remain in Endeavour House to avoid making a double transfer.

Having dealt with these items, I can best explain the movements under the other headings by showing their relationship to each other, and to the conditions at present obtaining. Sffite and Private Enterprise.

Deposits, £66,056,000, show the small increase of £1,541.000. This, taken with the like experience of other banks, is evidence of the slowing-up of out- national progress, and a lower capacity tb provide for the development of the; many anil varied industries of tlio community. It seems necessary to repeat what jl said two years ago in this connection. The drain on local funds, as the result of borrowings by Governments and Local ■Authorities, appreciably affects the accumulation of deposits. This, in turn, reduces the funds available for Advances, and for that private enterprise upon which our progiy»ss and wealth mainly depend. Without a steady and appreciable increase in deposits yparj by year the banks cannot extend their support to the development of the community. The bahks cannot create credit except by resorting to inflation, with its painful aftermath. .This leads me to the point I wish particularly to stress. The people, as a. whole, will bring about their own undoing if they pursue the policy of past years, '-with its extravagant and often unproductive. expenditures., Such policies, with their reduction of output—not necessarily the value of output—must bring hard times and force upon us a lower standard of living. Whon theso are combined with a serious fall in the prices obtainable for our chief staple, wool, and a considerable reduction in the quantity of another, wheat, due to adverse weather conditions, the outlook is hard indeed. The figures of tho Balance Sheet givo full support to tho position thus outlined.

..Public Leaning on the Banks. Advances liavo increased by £8,074,000, making ,a total of £59,427,000. When takerj with tho comparatively small increase in' Deposits, this, is a striking testimony to the way in which 1 otir customers liavo found it necessary to-lean upon.us during the past year, and when it is realised that tho experience of the other banks is similar to ours in this department also, it behoves all of us to take stock of 'cur position, both as a community and as individuals. Tho money for theso increased advances, has been provided mainly from our liquid assets; Government and other Securities, Treasury Bills, and Cash, which show reductions of £2,074,000, £2,000,000 and £4,090,000 respectively. On the other hand, money at, Short Call has increased by £1,220,000, and other items show small increases. ' Last year our holding of cash was on tho high side for this time of tho year, so that the reduction is not as important as it may appear at first sight. These figures will begin to . readjust themselves as the proceeds' of our produce como to hand, and tho community accommodates itself to our altered conditions. This readjustment will, however, tend to be slower than in past years. The prices and quantities of our primary products are so much less and the National incomo so much smaller.

The Capital is the same as last year, £7,500,000, and it is. proposed to add £250,000 to the Reserve Fund, making it £6,150.000.

In view of the serious fail in the prices of our staples over recent years,, there must follow an appreciable fall in the values, of our lands and other asset's of tho community. Your Directors, therefore, feel that the prudent courso is to conserve tho resources of tho Bank. It ia proposed to pay the usual dividend at

the rats of 10. per cent, p.a., but -not to pay a bonus on this occasion. The Shareholders have had the benefit of four bonuses in succession, or, in other'words, have received in four years dividends which would, in the ordinary course, have been paid over a period of five years. This, decision will not come altogether as a surprise to you, as I have warned you on each occasion that the bonus is a matter of each year only, and not to be taken as a precedent or an earnest of continuance. In 1927 I asked the newspapers not to include the bonus when stating the rate of return on the quoted prico of our shares. This advice, I regret to say, was utterly disregarded. Before leaving our own immediate affairs, it is desirable that I should draw your attention to the burden taxation is becoming in our own particular'case. The Bank has paid £350,086 during the year. This is an increase of £55,741 on tho amount paid last year, and of £79,019 on tho year before. Taxation now represents a charge of £4 13s 4d per cent, on our Capital, a charge which, in two years, has risen somewhat over 1 per cent.

Production in Australia. Turning now to conditions generally, we expect to find 3ome districts having good seasons and some bad in a business covering the largo areas; we do. Tho winter in Tasmania has been rather severe. The western parts of Queensland and New Soutli Wales arc still drought-stricken, as arc the north-western parts of Victoria and the northern portions of South Australia. Western Australia, generally speaking, is having the best season all round of the Australian States, although the: wheat crop will not be as large as was hoped for some couple of months back. While recent rains and cool, weather'have improved the outlook, for tho wheat harvest in New South Wales, Victoria and South Australia,*-f he yield will be much below average/' The wool clip will be considerably lower than last year, and, with the continued fall in prices, returns will, in most cases, do little more than pay expenses. It is cheering to-be able to. report an improvement in tho beef .cattle industry, which has suffered so Severely for some eight or nine years. As to the: future,- the season is opening with more promise of good rains, and we look forward in the hope that the long drought wilt pass from , our western areas at no distant date. Could we but settle our industrial troubles and reduce our costs of production to enable both priinary" and secondary industries to work on a profitable competitive basis with .the, of the world, and secure in : their fjcedom from strife, the present trade depression would soon pass. The seasons in New Zealand have been good, and the country is iprosperous. The external trade shows a substantial balance in favour of exports, while Australia's balance is the other way.

Conditions in Fiji are good, desipite lower prices for Sugar and Copra, as are also those in Papua and the Mandated Territory of New Guinea. Before concluding, I wish to :refer briefly to .several) matters of current interest.

Overseas Trade Position. The reduction in the quantity of our chief exports, due to the drought conditions which have prevailed over many parts of Australia, coupled with the continued fall in values, is having, the effect of decreasing Australian funds abroad. These funds are required for the discharge of Government and other obligations, and for the handling of Australia's external trade. Excluding such outside influences as borrowings abroad by Governments and others, and the< investment of capital from outside in Australian ventures, imports will always adjust themselves to exports, but with iv lag—if increase imports should increase at a somewhat later date; while the converse is true that imports will decrease following upon a decrease in exports. It would lie very unwise to attempt to correct the present position by placing an embargo on imports generally, or on specified impprts. To do so would, in the first instance, damage our good trade name, then create injustices among the trading community, according to the way in which different sections are placed with regard to their external commitments and further expose individual traders to the risk of damages' for breach of contract, etc. On the other hand, should prohibition of imports become effective, we should lose our Cusi toms Revenue and ultimately bo unable to sell abroad our surplus products—wool, wheat, etc. These products would then become valueless, or of little value, •as production is far in excess of Australia's capacity to consume, and disaster would be the result. ', *

Marketing Experiments. As against this question of restriction of imports, we have certain sections of tho community who have resorted to, or wish to resort to, artificial means of controlling the realisation of their produce. I do not think that any such artificial tampering with the course of marketing will in the end achieve the objects aimed at, but the serious aspect of the case, from our point of view, is that those who have sponsored such schemes have apparently overlooked the question of finance. How is it possible for us to carry over a considerably extended period the product already harvested or shorn, while at tho same time we are called upon to finance the growing harvest or clip ? In times when money is plentiful it might bo possible to go a long way towards achieving this object,- but in a period when our Joads are already heavy, it is \ery doubtful whether our financial resources will enable such schemes to bo carried through without denying the. necessary finance to those in need of it for tho current season's requirements. There is another aspect'of this question. It is unsound for the producer to become a speculator in his produce. It has been suggested.that proposals are being considered to extend the note issue. It is a feature of any elastic currency system that it should bo capable of extension to meet tho seasonal requirements of the community from time to time, but it is a very different matter, when, either by design or otherwise, reduction in the percentage of gold backing occurs, apart from seasonal requirements. If by design, such a movement, when divorced from the genuino trading requirements of the community, becomes, ■inflation, bringing about higher prices, with an increased cost of living, which •bears most hardly on the workers and those on fixed incomes! ' ''

The Perils -of Inflation. ■ Any such inflation would increase the .burden which is already a heavy one upon our exports, and consequently our primary industries; while, on the other hand, it would encourage imports. Another effect would be the continued drain of gold until, no doubt, resort would be had to an embargo on tho export of gold. The Australian note would then become inconvertible, and the'doors would be flung wide open for inflation in its worst .fonu, Tho proper means to- check any such drain would he to raise the interest rates,* and so preserve the common measure of value wo have to-day with all other commercial countries. 1

Another proposal is that all borrowing by. Governments and Local Authorities Should be restricted to tho Commonwealth, and that no loans should be raised abroad a policy with which I agree. To adopt this policy now, however, would restrict all development work in Australia to such proportion of the amount of tho annual savings of tho Australian community as could bg attracted to investment in such loans. . To h,orrow beyond this would create inflation, which has been roferred lo above,' in connection with the note issue. In a partially-developed country, such as Australia, it is neccesary for a time that capital, in addition to the savings of the community, .should be attracted from outside, to enablo important schemes of developmental works to be carried on. To refuse absolutely to accept capital from abroad would bo to slow up our development suddenly and limit it to our own capacity to undertake it. The latter is tho more desirable course, but, having pursued a policy of external borrowing for many decades, to turn round now and

limit borrowing to tlie funds available in tho Commonwealth would be to in(irease unemployment far beyond the conditions now obtaining. Largely owing to the tremendous wastage of accumulated capital during , the war, and the policies pursued more or less throughout the world during and since then, the supplies of available funds fall short of requirements, and rates of interest sxq tending to harden throughout the financial world. Owing to this there iis no doubt that we shall have to pay more for our requirements in the immediate future.. Should a policy of borrowing internally bo persisted in, the funds so obtained must be withdrawn from the funds in use by the community in its trading and industrial activities, both primary and secondary. It is easy to see, therefore, that the employment given on tho one hand would increase the unein-

ployment on the other, while the withdrawal of necessary finance would tend to weaken or destroy a proportion of industries already existing, and tho income available for taxation for Govern-

ment purposes would be reduced over the

whole community. Unproductive Loans, Tho Loan Council ought to advance warily and not be led away into great additions to public indebtedness, whether internal or external. The economic bur-

den of an internal debt is just as heavy as that of an external debt.

Much is made, and rightly so, of the distinction between borrowing for pro-

ductive and for unproductive expenditure. I am afraid that much of our so-

called productive expenditure is in reality more or less unproductive. " The simple practical rule for productive expenditure is, that after a term of years, the undertaking should repay the original expenditure," in addition to providing interest,.

depreciation, etc., during tlrj currency of tho loan. To tho exten'i that pur loans are note fully productive they arti a burden to us, and unproductive expenditure tends to leave nothing behind but debt and unemployment. Our borrowing policies in the past have contributed materially to our unemployment problem. The scale of borrowing has meant inflation, with rising prices and disordered trade. With our arbitrary systems of wage fixing this policy meant higher and yet higher wages. We cannot" have continual and general rises in wages and keep the costs of production within economic limits.

Taxation on capital will indirectly affect the wages of labour, and so far tend. < to lessen the productive power. Taxation is also a feature of the l costs of production.

Economy Essential.

The serious reduction in our national income during recent years must impress everyone with the urgent necessity of reducing the costs of production ais , well as public and private expenditure. We must realise now that the wastes _.o:i war and of unproductive expenditure in the sense I mentioned above can only bo. made good by greater effort.- There in no other Way out. Expedients, such ais borrowing to provide employment, inflation of the note issue, or the maintenance of high prices^by fixing money wages or restricting output, will lead us to harder times and greater difficulties. Expendi- >' tures must, be reduced. There is abundant evidence in th% financial columns of the press that capital is already having to face the re-adjustment. Labour as a rule benefits by falling prices and loses by rising prices. Are wo _as a people incapable of„ facing the position we find ourselves in ? Aire we able to keep up artificial rates of wages and working restrictions the while repeated applications to the Courts ' show that real wages, that is purchasing power, do not follow them? Is it sound to follow the doctrine of high wages for some, while others cannot find employment at that figure 1 Is it not better for all to work on a lower nominal wage ? Could not the readjustment be made by small amounts monthly spread over an extended period, and so reach a sound and profitable basis with as ' little injury to trade and industry as possible'! It is imperative that wo should be, ablo to produce both in the primary and secondary spheres at a cost enabling us to sell at a profit in competition with the outside world, and. leinphasise, to do so without artificial aids such as bounties, etc. f The serious increase "in taxation is another feature of the high cost of production. This burden is accentuated by the uncertainty, from year to year, in the incidence of taxation and by the administration of the various Acts, which is too often unsympathetic and failing in appreciation of the needs and difficulties of the'taxpayers concerned.

The Commonwealth Bank. The last suggestion I propose to deal with is that the Commonwealth Bank should be made a People's Bank. Those >vho set this before themselves as their policy do not. define the term "People's Ba:nkj" but it has a specific: meaning in domestic banking. Suffice it to say here that a People's Bank is not a Trading Bank in this ordinary sense of the term. It is a co-operative credit institution to assist wage-earners and small husbandry. .1 take it that what is meant is a trading or commercial bank. We have a population of about six and one third millions. The Trading and Savings Banks of Australia, and in this connection we include also the Commonwealth Bank, have 2945 Branches with 5468 Agencies, a total of 8413 points' ai\ which banking facilities are offered to the community. This works out approximately at one for every 756 of the population. It can thus be seen that there is no reason to be. adduced from the dearth of banking facilities to demand the conversion of the Commonwealth Bank into a People's Bank. On the other hand it is necessary to point 'Dint that over a period of years the Commonwealth Bank in co-operation with the Trading Banks has been gradually mailing progress toward becoming the Central Rescrvo Bank of Australia, and titiiis tlie key-ston6 of the financial arch. Consultations have been had with, recognised authorities on this subject, and the principles as laid down by. them have over been kept in the forefront of the Board's policy. To alter this policy would bo to destroy the work of years. The Commonwealth Bank would then become involved in the ordinary vicissitudes of trade, commerco and industry in the samo way as tho Trading Banks are. As it could not then fulfil the functions oi a Central Reservo Bank, being involved in tho same way as the Trading Banks, and having its assets; in the . samo largely un-liquid form ais a trading bank must necessarily have, the support of the latter would of necessity have to be withdrawn. The financial position of Australia would then revert to what it was in the' first few years of this century, where every Bank had to stand on its own feet. Naturally the promoters of the Commonwealth Bank take pride in it, but would it not be an achievement far beyond what its sponsors intended were the present policy accepted and the Commonwealth Bank with the assistance of the Trading Banks allowed to proceed on its way to achieve the great and outstanding distinction of becoming, when the time is ripe therefor, tho Central Reserve Bank of Australia '!

In conclusion I wish to express tho Directors' appreciation of tho work of the a staff throughout the past year._ During that period Mr. Oscar Lines, our General Manager, retired, and Mr. A. C.: Davidson was appointed in his ..place. Ifc is with profound regret.,that I refer to the untimely death of one of .our Directors, the late Mr. F. B. S. Falkiner, and of one of our Auditors, the late Mr. W. Harrington Palmer. We wish to place on record the valuable services they rendered to the Bank, the former duiing the eleven (11) years he was a Director and the latter as an Auditor for periods extending over the last 27 years, and to express our sympathy with those whom they have left behind in their bereavement. To fill the vacancy on the Board, Sir Kelso King was asked to join the Directorate.

["The text of Mr. Buckland's address was received by mail. We have smco been advised that ifc was prepared and copies printed for distribution before the of Mr. Theodore's. Jjuiancuu Statement in the Federal House ot Representatives, j