SOUND FINANCES

New Zealand Herald, Volume LXXIII, Issue 22444, 13 June 1936, Page 15

SOUND FINANCES

BANK OF NEW ZEALAND

PRUDENT POLICY IN PAST RECENT LEGISLATION EARNING POWER AFFECTED [BV TELEGRArrr —press association! WELLINGTON. Friday Reasons for the gradual reduction in the earning power of the bank were civen by Sir George Elliot, chairman of directors, at the annual meeting to-day of the Bank of New Zealand. Sir George said that this had been brought about by a general fall of interest rates in New Zealand and London, by a curtailment of advances owing to lessened demand, and by increasing deposits which could not at present be profitably employed. Moreover, the amendments to the Reserve Bank Act and certain provisions of the Primary Products Marketing Act would have a tendency further to reduce banking profits.

"Some of tho legislation directly affects the trading banks," said Sir George. "For instance, they are to lose from August 1 the handling of the exports of dairy produce, and, should wool and meat come under the Government's guaranteed price and marketing scheme, the effect would be that the banks would be entirely deprived of the normal means of replenishment of their London funds and would have to purchase all their exchange requirements from the Reserve Bank of New Zealand. The Government's proposals will seriously affect an important branch of the trading banks' business, a business they have developed and carried on since the earliest days of banking in New Zealand. Services to Dairy Industry "The trading banks hare playc-d an important part in financing and developing the dairy industry from the inception of the co-operative scheme iin New Zealand. But for the assistance given by the banks, the dairy faotories as a whole would not be in the flourishing position they are to-day. In view of the services rendered to the dairy industry, jt is to be regretted that the Government,, in framing its proposals, has decided to take away from the trading banks an important portion of dairy produce finance which in the past has been handled by them with the \itmost satisfaction to all parties. The loss of the London exchange in connection with exports of this produce will make unprofitable the working of some of our branches, the existence of which has only been justified because of dairy factory connections."

Sin George referred "to the strong financial position of the bank. He said that no one studying the successive balance-sheets since 1895 could help being impressed with the remarkable progress the bank had made. Much credit was due to directors and management for steering the bank safely through those early, highly dangerous times. For some years subsequent to 1895, although increasing profits were earned annually, no dividends were paid to shareholders, all surpluses being used to write down assets and place the bank in a strong financial position. Today the shareholders were reaping the benefit of that policy. Reserves Built Up

If the_ bank had not, over many years, built up strong reserves, it could not have carried on. the business of the country so smoothly,' nor would it have emerged from the depression in the strong position it was to-day. Sir George aaded that during the years he had been a director, to the * best of his knowledge and belief, no customer had been harshly treated. On the other hand, any client finding himself in financial difficulties and showing a readiness to help himself, had ever received the most sympathetic consideration. Referring to the services of Sir Harold Beauchamp and Mr. 0. Nicholson, two of the Government nominees on the boardi whose terms of office expired on March 31, Sir George said that Sir Harold Beauchamp's connection with the bank had been an outstanding one. A nominee of the Government to the board on its reorganisation in 1898, Sir Harold was a director for over 37 years. 15 of which he was chairman. The bank, when he became associated with it, was still suffering severely from the depression of the 'nineties, and he took a prominent part in guiding the institution from a position of weakness to one of great strength. His reappointment to the board by successive Governments indicated the high esteem in which his abilities were held. The board had placed on record its appreciation of Sir Harold's valuable and distinguished services to the institution over a period of so many years. Progress to Recovery

Mr. Nicholson joined the board in 1924 and was chairman for the financial year ended March 31, 1933. The board lyid also recorded its appreciation of Mr. Nicholson's valuable services to the bank during his period of office. After mentioning the continued progress toward economic recovery in the Dominion, Sir George emphasised the urgent necessity of facing the fact that for New Zealand the United Kingdom was practically its only market. He said that if due regard was paid to the manifest advantages of a closer reciprocal trade relationship with Great Britain, and if that reciprocal trade relationship were wisely fostered, New Zealand, with its genial climate and fertile soil, should find that general prosperity was not unattainable.