BANK OF NEW ZEALAND

Otago Witness, Issue 3614, 19 June 1923, Page 23

BANK OF NEW ZEALAND

AX XT AT, MEETING. Tho annual meeting of the Bank of New Zealand v-as held m\\ eliingtou on l'riuay, Sir George Eliiot, chairman of directors, "presiding. The Chairman, in moving the adoption of the annual report and balance sheet, said the pa=L year, as compared with the two previous years, showed a considerable tailing off in profit. This was accounted for chiefly by loss of interest consequent on the reduction during tho past year of over three millions in the bank’s advances within the dominion, and bv a reductibn since tne New Year in tho rate of interest charged upon the best accounts, and by the lower rates obtained for a large proportion of the funds in London. '1 he largo amount of funds held outside tho Dominion had often been the subject of unfavourable criticism, but the wisdom of tr.e bank 3 policy was proved during the financial depression that set m towards tile end o 1920, when, by realising London and Australian investments, it was aokp witn comparative ease to meet all legitimate demands made upon it. The policy of tho board was to maintain a position of Strength and never to subordinate safety to profit. To this end a largo portion of resources was kept in a readily realisable form, even though by so doing profits might suffer. Income tax in Great Britain, Australia, and the dominion had been roduced; but, on the other hand, it had been found necessary to make considerable provision for possible losses, almost all of. which are in respect of large rural busiThe proposed addition of £150,090 to tho Reserve Fund would bring the fund up to £1,825,000. The balance carried forward showed a slight reduction, and now was £421,957—a sum more than sufficient to pay a year’s dividend. It was not proposed on this occasion to write down landed property and premises which figured in the balance sheet at nearly three-quar-ters of a million less than the land tax valuation. The board had marked its appreciation of the work of the staff by granting bmiuses to all the members, with the exception of the junior unmarried men. These junior officers receive yearly increases on a fixed scale until £270 per annum was reached; moreover, ihose who showed marked ability were given a higher rate of pay than was provided by the scale, and it was gratifying to know that ibis recognition has been deservedly earned by a large proportion of their number. The hank's funds were accumulating in London to an extent much in excess of our requirements, and it was impossible at present to transfer even a portion of the surplus to Mew Zealand except at a heavy loss. Exports continued greatly to exceed imports, and, in the interests of the dominion, it was to be hoped that that position may long continue; but, as long as it existed, exporters must expect to pay higher rales of exchange than they had recently been accustomed to. Importers, on the other hand, were enjoying rates much more favourable than thev had experienced during the last few years. Unfortunately for the banks, interest rates in London for short loans and Treasury Bills m which prudent bankers invariably employed surplus funds—had been at a very low figure, the average return for the last year being only £1 ISs 3d per cent, on the short loans, and £2 5s 9d per cent, on tho Treasury Bills. As 4s 6d in the £ had to be paid to the Imperial Government in the shape of income tax upon London profits, the net return yielded by these investments was correspondingly less than the rates just mentioned.

In some quarters it was thought that when the London-New York Exchange rate reached somewhere near par, gold would again come into circulation. That condition would enable banks to bring out sovereigns from London to adjust their balances. It was probabie, however, that many years would elapse before gold comes into free circulation, since, with the exception of tile United States, which held about one-half of the gold of the world, every country would naturally desire to retain, and, if possible, increase its holding of gold. In New Zealand the resumption of tho use of gold coinage would result in a lar go reduction of the note circulation, with a consequent loss to the Government on tho note tax paid by the banks. If tho note circulation were to be reduced to the figures at which it stood during the year prior to the commencement of the war, the loss of revenue to the Government would amount to about. £150,000 per annum. Not only did the banks pay a direct tax of 3 per cent, on the circulation, but, in addition, tiiey were assessed for income lax on the amount of the circulation as well as for the coin and securities held in New Zealand against the circulation. It was quite a common mistake to suppose that the increased note issue in New Zealand had been a contributing faeior m the inflation of values; it was merely an effect, not a cause. For example, as compared with 1914, the average increase in wages in the dominion had been about 50 per cent., so that an employer of labour who in 1914 drew 1000 sovereigns to pay his wages bill now required to draw £ISOO in notes to pay the same number of employees. If gold payments were resumed to-morrow, though it must he borne in mind that, was out of the question to resume such payments until gold was worth Tittle or nothing more for export purposes than its mint value—could it lie supposed that 1009 sovereigns would suffice for payment of the wages hill die hail quoted as ari illustration? As a matter of fact, the exchange value of gold had fallen 31 per cent, from i lie highest point it reached since 1914, whilst the cost of living figures had fallen only about 20 per cent. Again, ’ if cheques were more extensively used for payments, there would he a material reduction in the note circulation. The ban lc’s own note circulation showed an increase of £269.000 as compared with the 1922 figures. but that was due to the annual balance having taken place on the eve of ihe blaster holidays. F,.r a few weeks liefore and after Easter, Christmas, and New Year holidays. Hie note circulation usually increased by amounts varying from three-quarters of a million to something over a million. Deposits showed Ihe satisfactory increase of £1327,323. Advances within the dominion, which in 1921 reached uneomfort-

ably high figures, showed a decline of £3,511,000 for the past year, but the position was by no means so satisfactory aa the bare figures might indicate. The reduction was due chiefly to repayment of the exceptional advances made to traders during the period of over-importation in 1920-1921, and to the improved returns received far their produce by our substantial farming customers. A considerable portion of the advances was still of a somewhat unliquid nature. To counter balance this, the bank was keeping a larger amount of its resources than usual in undoubted investments of an immediately realisable character. The advances had been scrutinised with the greatest care, and the board was satisfied that, so far as it is humanly possible to judge, the most a,mple provision had been made for all probabie and prospective losses. The minimum rate of interest on Dank advances in the dominion was reduced to &1 per cent, on January 3 last. The reduction of income tax last year, and the promise of a further reduction shortly, enabled tho bank to reduce the rate, on a great many overdrafts. Although 6*.- per cent, was the quoted “minimum” rate, ihafc was not averaged on the whole of the advances in New Zealand. Hard times disclose unsuspected weaknesses in the financial condition of many customers, so much so that, in some cases, it had been found necessary for the time being to forego interest, in others to make substantial concessions, the result being that the average rate of interest earned by advances in New Zealand had been adversely affected. There was little probability of any further reduction in our advance rates, while overhead expenses remained so abnormally heavy. As it was still difficult, to borrow on fixed mortgage even on a 50 per cent, margin at less than 61 per cent., it must be recognised that their borrowing customers had little to complain of, since they had the advantage of paying on their daily balances only. Comparison is sometimes made between lending rate 3 here and those ruling in London, but the conditions were entirely different, Australian rates certainly are a close relation to those in New Zealand, although banks in New Zealand were subject to a much higher income tax than in Australia. 'J’he rate o-f interest on mortgages under the moratorium, which would expire next year, was fixed under the .Act at 65- per cent. It had been suggested that the rate might fall when ihe Act expired, but unless there was also a decided fall in Australian rates this was unlikely to happen, for mortgage rates, like the overdraft rate in New Zealand, were to a large extent governed by those ruling in Australia. Undue pressure on large lending institutions here to reduce the rate of interest would have the effect of driving money to Australia for investment. The fact must not be overlooked that a reduction in the lending rate was sooner or later followed by a reduction in the deposit rate, and (hose people who were so insistent that the lending rate should be reduced should not forget the, 700,009 depositors in the Post Office and Trustees’ Savings Banks who would suffer from reduction in interest rates. In addition te tho deposits of about £48,000,000 held by the Post Office and Trustees’ Savings Banks, the joint stock batiks also hold interest-bearing deposits to the amount of about £17,000,000. The claims of the fixed depositors to receive a reasonable rate of interest must have the sympathetic consideration of the hanks; and, as any further reduction of the lending rates would necessitate a, lowering of the interest allowed on fixed deposits, it would be readily understood that the banks were not disposed, for the present at any rate, to make any alteration.

In conclusion, the Chairman said:—l have not hesitated to indicate some defects which exist amongst us, and which are dangerous to the well-being of many of ihe people of this country, but, on the other hand, _ I must point out that the vast majority of our settlers are in a thoroughly -sound position. We are in a most favourable position to form an accurate estimate of the actual financial condition of the country, for nearly 50 per cent, of the banking business of the dominion is transacted bv our bank. The information thus obtained, the knowledge which we possess as to the spirit m which the great majoritv of our people have met the difficulties of the past two or three years, loads me to look forward with confidence to the future of the dominion and to expect that the years to come will witness steady progress. New Zealand is a land peculiarly fortunate Ii is a young country, but its "very youth should be its chief asset. Every day it is making_ its own history, and its'own traditions; if it remembers the value of cooperation between the classes, that history should make pleasant reading in the future. Mr W. Watson, in seconding (he motion ,or the adoption of the report and balance sheet, congratulated shareholders on the strength and continued prosperity of the oamc. which had warranted the 'board in resolving to increase the capital. The shrinkage in advances since last year must not be taken as a decrease in (he central business of the bank for the advances * last year were unduly swelled by unusual and high-priced importations of goods which were being gradually got rid of.' What really mattered was that the general operations of the bank were steadily increasing and must continue to increase with the population of the dominion. It was from these that the profits of tho bank were made, and he was confident that unless some unforeseen national calamity should occur the future working would permit of the ame rate of dividend as liefore being paid on the increased capital, as well as remilar additions to reserves. This opinion ° was based on his knowledge of the soundness of the assets, the careful policy of tho board, the excellence of the general management and staff and the very valuable goodwill, to which might l>e added the confidence engendered by 29 years’ experience of the i>rogress of the 'institution. Of course, what lie said must be taken as his own opinion solely, and in no way as committing the board, whose views' the chairman alone was entitled to express. He added that he would retire by rotation next March, but would again be, a candidate. The report and balance sheet wore adopted. Sir George Elliot and Sir Harold Beau champ were congratulated on their knighthoods, and a vote of congratulation proposed by Mr J. Mill (Port Chalmers). In seconding it, Mr T. Shailer Weston spoke highly of the part Sir Harold Beauchamp had played in tho development of

the bank, which no-.v held a position similar to that which the Yokohama specie 'rank of Japan holds, and was almost on terms of equality with the five big English banks. During the last great crisis the work of the past years had been ihoroughly tested, and although there might have been some errors of judgment in the past yet everyone was liable to make some errors of judgment, and it was inevitable that even big men should make some mistakes; yet he thought one could say this: comparing the assistance which the Bank of New Zealand was to this country in our time of stress with the assistance rendered by the Commonwealth Bank of Australia, one could say that the comparison was altogether in favour of that rendered by the Bank of New Zealand to this country. In fact, in some respects, the Bank of New Zealand bad beeu of assistance to Australia, notably in the matter of assisting in respect to exchange. He was sure they all hoped that Sir liaorld Beauchamp would live long to enjoy the honour which had been conferred upon him. As to Sir George Elliot his honour hail coma to him almost at the beginning of his career. The speaker alluded to the work of Sir George Eliiot in connection with Samoa, and as member of the Railway Commission. The honour conferred upon him must be also regarded as an honour to the bank. Those who had hoard his speech that day must recognise that the affairs of tire bank were in the hands of a man of exceptional ability. The words of his address were pregnant with meaning, and his remarks showed that he was a man who had tho courage of his opinions. His reference to the farmers, and as to tho facilities as to credit which had been afforded to them might no doubt be unpalatable to some, but what hail been said was in the interests of the dominion, and more especially of the sound and stable farmer himself. The motion was carried by acclamation. Votes of thanks were also given to the directors and the general manager and staff, in acknowledging which Mr H. Buckieton endorsed what had been said as to the trying times which during tho last few years had been gone through, particularly by branch managers, and also by senior officers at the head office. He concluded by assuring those present that the officers of tho bank would do ail m their power to advance the interests of shareholders. BANK SHARES ON ’CHANGE. WELLINGTON, June 15. For some time past public interest in the ordinary shares of the bank has been particularly keen. The Wellington Stock Exchange reports, which reflect more or less the prices in other New Zealand exchanges, show that sales were made m March, 1921, at as low as £2 0s 6d; in June, 1922, the price was from £2 12s 6d to £2 14s 6d, rising to as high as £2 17s, and coming back on the announcement by the general manager in August of that year that there were then no foundations for the rumours that there was to be a new issue of capital, and that there had been no change in the position since the annual meeting held in June of that year. In fact, when the issue of further share capital would be made had not been seriously considered by the directors. Shares had been steadily rising this year. They opened at £2 16s 6cl in January, went to £2 19s 6d, and receded to £2 16s, ex dividend, closing at £2 17s 6d. They remained round about that figure until April, when the rise began again, sales being effected at £3 to £3 15s 9d, but falling again towards the end of the month. During June they have been dealt in at £3 Is 6d to £3 2s 9d, cum dividend. CAPITAL TO BE INCREASED. WELLINGTON, June 15. The following announcement was made at the Bank of New Zealand meeting today by the chairman:— In order- to make tho capital commensurate with the deposits and general ousiuess of the bank, and to provide for the rendering of a maximum oi support to our borrowing customers, the board has resolved to issue at par £1,125,0C0 of new capital. In accordance with the provision of 'The Bank of New Zealand Act, 1920,” one-third of the amoutit (£375,C00) will be offered to his Majesty the King in the form of preference B shares, and two-thirds (£750,000) to ordinary shareholders in the proportion of, as near as may be, one new share to every three shares on the register in their name on July 27, 1923. The offer will be open for acceptance as soon as .made, and will be made as soon as practicable after July 27. 1923. The holders of ordinary shares will be entitled to purchase the whole or any of the shares so offered to such holders, at any time on or before October 1, 1923. Interest at the rate of 5 per cent, per annum will be allowed on payments made in advance of the due date. For the purposes of the offer the transfer books of the bank will be closed from July 27 to August 10, 1923. both inclusive. “A point with regard to the preference A shares has been raised,” said the chairman. "Dividend on these shares is fixed at 10 per cent., but is non-ciumdative,” he continued.

“That is to say, that if a disastrous year occurred in the bank’s finance, when it might be undesirable to declare any dividend, there would exist no right to the Government to be recouped in later years the dividend lost in the unfortunate period. It is in the last degree unlikely that such an event will occur, but ihe Government is of the opinion that the State’s interest under the preference A shares should be absolutely secure, and the directors have fell the force of the view that a dividend upon preference A shares should have statutory place as cumulative. The Government lias intimated that it will become necessary to amend the law in this respect, and the directors have therefore intimated to the Government that they see no objection to such an amendment being made.”