COSTS AND PROFITS

New Zealand Herald, Volume LXXIII, Issue 22435, 3 June 1936, Page 17

COSTS AND PROFITS

Sir, —Surely R.C.S. was hardly wise in his letter of May 30 to say, "I did not refer to the ißank of New Zealand in any way," for his exact words were, "The capital of a bank or insurance company," so I took him at his word and dealt with the only two essentially New Zealand trading hanks. He must therefore excuse me if I object to his attempt to shift his ground by saying that he was referring to "many New Zealand industrial and financial institutions." He may argue with Mr Warburton about the former if he likes, for I disputed his own letter, and dealt only with the latter. His record of the Bank of New Zealand dividends between 1861 and 1894, a total of £2,777,746, may be correct, for it averages about 13 per cent, not a very high profit in those days, for I happen to know that interest rates were very high indeed during part of that period. The banks must have been performing services which the public appreciated, among other services, the mobilisation of cash from those who had more than they required at, the time, and lending most of it to those who had less than they required at the time. The mistake then made bv the banks, both here and in Australia, was that they lent too high a proportion of their funds, and to unworthy borrowers, while also paying in dividends too high a share of their profits. Once bitten, twice shy, so now they lend out a smaller proportion of their funds in advances, and pay a smaller proportion of their profits in dividends, putting the rest to reserve or capital, so under no consideration can this be called over-capitalisation or "watering of stock." In this they are just lik* those citizens who reserve a good proportion of their earnings to support their old age, and also to help the community in a time of depression, whereas if they spent everything as fast as it is earned they are in trouble and a burden to their fellows as soon as their expectations fail. Commercial.