BANK OF NEW ZEALAND

Southland Times, Issue 18969, 16 June 1923, Page 8

BANK OF NEW ZEALAND

THE YEAR’S WORK. THE CHAIRMAN’S ADDRESS. REVIEW OF ECONOMIC POSITION. WELLINGTON, June 15. The annual meeting of shareholders of the Bank of New Zealand was held to-day, Sir George Elliot, Chairman of Directors, presiding. In the course of his address he said:— You will have seen from the report that it is proposed to pay for the full year the tune rate of dividend as for the preceding year, viz., 40 per cent, per annum on the Preference “A” Shares, and two shillings per share on the Preference “B” Shares — both of which issues are held by the Government of New Zealand—and 2/8 per •hare on the Ordinary Shares. The whole dividend for the yfar on the Preference M A” Shares, an interim dividend of 1/4 per share on the Ordinary Shares, and the proporrionte dividend upon the Preference “B” Shares were paid in December last. Compared with the two previous years, last year shows a considerable falling-off in profit. This is accounted for chiefly by loss of interest consequent on the reduction during the past year of over three millions in our advances within the Dominion; by reduction, too, since the New Year, in the rate of interest charged upon our best accounts, and by the lower rates obtained for a large proportion of our funds in London. The large amount of funds that we have thought fit to hold outside the Dominion has often been the subject of unfavourable criticism, but the wisdom of our policy was proved during the financial depression that ■et in towards the end of 1920, when, by realising qyr London and Australian investments, we were able with comparative ease to meet all legitimate demands made upon us The policy of the Board is to maintain • position of great strength and never to •übordinate safety to profit. To this end we keep a large portion of our resources in a readily realisable form, even though by so doing our profits suffer. Incofiie tax in Great Britain, Australia and the Dominion has been reduced; but, on the other hand, we have found it necessary to make con■iderable provision for possible losses almost all of which are in respect of our large rural business. The proposed addition of £150,000 to the Reserve Fund will bring the fund up to £1,825,000. The balance carried forward shows a slight reduction and now is £421,957 —a sum more than sufficient to pay a year’s dividend.

EXCHANGE AND NOTE CIRCULATION. In common with most of the other Australasian banks, our funds are accumulating in London to an extent much in excess of dur requirements, and we are at present unable to transfer even a portion of the surplus to New Zealand except at a heavy loss. Exports continue greatly to exceed imports, and, in the interests of the Dominion, it is to be hoped that that position may long continue; but, as long as it exists, exporters must expect to pay higher rates of exchange than they have recently been accustomed to. Importers, on the other hand, are enjoying rates much more favourable than those they have experienced during the last few years. Unfortunately for the banks, interest rates in London for short loans and Treasury Bills—in which prudent bankers invariably employ surplus funds—have been at a very low figure, our average return for the last year being only £1 18/3 per cent, on the short loans, and £2 5/9 per cent, on the Treasury Bills. As 4/6 in the £ has to be paid to the Imperial Government in the shape of income tax upon our London profits, the net return yielded by these investments is correspondingly less than the rates just mentioned. In some quarters it is thought that when the London-New York Exchange rate reaches somewhere near par, gold will again come into circulation. That condition of course, enable banks to bring out sovereigns from London to adjust their balances. It is*probable, however, that many years will elapie before gold comes into free circularion. since, with the exception of the United States, which holds about onehalf of the gold of the world, every country will naturally desire to retain, and, if possible, increase its holding of gold. So far •s New Zealand is concerned, the resumption of the use of gold coinage would result in a large reduction of the note circulation, with a consequent loss to the Government on the Note Tax paid by the banks. It is worth noting that, if the 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 do the banks pay a direct tax of 3 per cent, on the circulation, but, in. addition, they are assessed for income tax on the amount of the circulation as well as for the coin and securities held in New Zealand against the circulation. Banks are required by law’ to hold coin, bullion, and public securities equal in amount to their notes in circulation. Of this sum, at least one-third must be in actual coin within the Dominion. .As a matter of fact, our holdings of these most liquid assets far exceed the legal requirements. It is quite a common mistake to suppose that the increased note issue in New Zealand has been a contributing factor in the inflation of values; it is merely an effect, not a cause. For example, as compared with 1914, the average increase in wages in the Dominion has been about 50 per cent., so that an employer of labour who in 1914 drew 1000 sovereigns to pay h»s wages bill now requires to draw £l5OO in notes to pay the same number of ployees. If gold payments were resumed to morrow, though it must be borne* in mind that it is out of the question ,to resume such payments until gold is worth little or nothing more for export purposes thfcn its mint value-—can it be supposed that 1000 sovereigns would suffice for payment if the wages bill that I have quoted as an illustration? As a matter of fact, the exchange value of gold has fallen 31 per cent, from the highest point it reached once 1914, whilst the cost nf living figures have fallen only about 20 per cent. Again, if cheques were more extensively used for payments, there would be a material reduction in the note circulation. In France, for instance, where cheques are not extensively used, the note circulation of the Bank of France is enormous, roughly speaking, in proportion to population, about eight times greater than it is in New Zealand, taking the france at its par value. Notes in circulation are, of course, in the hands of either the public or of banks other than the issuing bank. In the former case, naturally, the public retain just what is sufficient for their requirements. In the latter case, it might happen that one or more banks, by over-trading and by taking over business from the others, might thus have an excessive amount of notes outstanding in the hands of the other banks, but the latter could be trusted in case of necessity to take disciplinary measures to enforce adjustment. Our own note circulation shows an increase of £269.000 as compared with the 1922 figures, but that is due to our annual balance having taken place on the eve of the Easter holidays. It may interest you to know that, for a few weeks before and after Easter, Christmas and New Year holidays, our note circulation usually increases by amounts varying from three-quarters of a million to-something over a million.

TAXATION. At the end of last year, on the invitation of the Government, a Committee representing trades, professions, and various Aseo.iation? in New Zealand, considered the question of taxation generally, and sent in a report on the subject to the Prime Minis ter. Without going into the merits of the conclusions arrived at. I desire to bring before you oye aspect which was touched upon in this respect. I refer to the nontaxation of Municipal and Government trading enterprises. It is true that during the 1920 session of Parliament the Government intended to bring the Municipal trading activities under the provisions of the Income Tax Act; but a deputation representing certain interested local authorities waited on the Prime Minister and protested • xainst this being done unless the Governn »nt would at the same time agree to pay r*ces on theu various city properties.

i I think the claim of the local authorities i was a perfectly fair one, for until GovernI ment, Harbour Boards and City Councils 1 pay rates on all their properties, as well as taxes on their enterprises, the taxation of the country generally cannot be placed on ■an equitable basis. If income tax alone ; were paid by Governmental and local auth : orities on their activities, the amount would ;be astonishingly large. The fact that banks, companies, and private firms are so handicapped in competing with these Governmental or Municipal trading concerns is unjust, and the higher the income tax, the greater the injustice. It follows as a logical i conclusion that with the continued extension of Governmental and Municipal activities the yield from income tax must become seriously affected ;consequently either the tax must remain at a dangerously high level, or money must be raised by other means. It must not be forgotten, in estimating costs that income tax is as much taken into account as are wages or rents, and that in the end it is the public that pays the tax. If all municipal and Governmental trading concerns paid income tax, not only would competition be put on a fairer basis, but the burden of the taxation would be placed where it rightly belongs. ADVANCES. Advances within the Dominion, which in 1921 reached uncomfortably high figures, show a decline of £3,511,000 for the past year, but the position is by no means so satisfactory’ as the bare figures might indicate. The reduction is due chiefly to repayment of the exceptional advances made to traders during the period of over-importa-tion in 1920-1921 and to the improved returns received for their produce by our substantial farming customers. A considerable portion of the advanqes is still of a somewhat unliquid nature. To counterbalance this, we are keeping a larger amount of our resources than usual in undoubted investments of an immediately realisable character. Our advances have been scrutinised with the greatest care, and the Board is satisfied that, far as it is humanly possible to judge, the most ample provision,, has been made for all probable and prospective losses. The deposits increased by £1,327,323. CONDITIONS IN THE DOMINION.

Since our last annual meeting there has been a marked improvement in financial conditions in the Dominion, brought about especially by a greater demand for wool, with a consequent advance in its price, and by a largely increased output of milk products. The imports into New Zealand during the year show an increase over the figures for 1921-2, but the exports show a still larger increase of £,746,374, so that, on the whole, the balance of external trade is in favour of New Zealand to the amount of £8,573.117. I shall not make any comparison of last year's values of imports and exports with those of the pre-war period, as such a comparison, owing to the reduced purchasing power of money, would be likely to mislead. The substantial surplus of £1,315,683 in the Dominion’s revenue over expenditure is also a matter for congratulation. Notwithstanding this, the people of the country should not be mislead into supposing that the necessity for a maximum of economy in both public and private expenditure has passed away. The recovery from the severe depression of two years ago has be'en too rapid to be altogether wholesome, and it would be unfortunate if the lessons of that period were too quickly forgotten. Notwithstanding the optimistic reports which have recently been published, and the splendid increase in the value of wool, conditions all the world over are far too unsettled to warrant the assumption that the present price of commodities will be maintained. The number of bankruptcies during last year has been larger than usual, and the published figures by no means represent all who have failed, of farmers —many of them Returned Soldiers deserving the best of been obliged to surrender their holdings, thus losing all their hard won savings. In other cases, vendors have cancelled a proportion of the purchase money to induce purchasers to carry on. Most branches of wholesale trade are now on the high road to recovery from the over-importations of 1920-1921, and are giving promise of steady progress. It is a tribute to the sound financial standing of the community as a whole that such an exceedingly large proportion of our traders have successfully emerged from so severe a crisis. Heavy losses have been made, but, for the most part, they have been faced with a surprising equanimity and with a determination to profit by th” lesson. The financial storm passed lightly over the retail traders. DAIRY INDUSTRY.

The development of the dairying industry of-this country is . a matter of such vital importance to the whole community that the Government would be Mell advised to give it every reasonable assistance. An excellent way of doing so would be to import first-class stud bulls, so that dairy farmers of moderate means might hire the animals from the Government at a reasonable figure. With an improvement thus ensured in the strain of herds it Mould be reasonable to expect wuthin a few’ years an immense increase in butter fat production. Advantage could be taken of farmers’ organisations to carry out the necessary administrative duties of such a scheme. £lOO,OOO devoted to the purpose mentioned would do far more for the ultimate good of the industry than some of the concessions dairymen are asking for. The figures in a recent statistical report, although not guaranteed as being absolutely correct, may be taken as near enough for the purpose for which they were prepared; they show that the number of cows dry and in milk in New Zealand on January 31, 1922. totalled 1,137,000. After making an allowance for the number of cows which are used for the local sales of milk and cream, it is estimated that the average production of butter-fat per cow for the 1921-1922 season was 168.421b®. It •is pointed out in this report that the season under review was one of the beet the Dominion had experienced for many years. When one remembers that in Denmark and in some parts of America the average per com- is 3501 be. on* must realise that any assistance the Government can render to the dairy industry with the object of increasing th? yield of butter-fat per com’ must have an immense effect on the financial position of the country. It is reported that certain parts of the King Country and the Upper Waikato are becoming infested to such an extent with rabbits that the butter output of these districts is becoming affected. In the interests of the industry it is hoped that more active steps will be taken to cope with the pest. It ha- been suggested, and there is much in the suggestion to commend it, that the Fencing Act should be so amended for ratbit infected areas that an adjoining owner would bp compelled to share the cost of wire netting a boundary fence. As the law row stands, any settler desirous of keeping his land free of rabbits is unable to force his neighbour to bear his share of this particular improvement. No doubt there would be difficulties to overcome in connection with such an amendment, but I do not think they Mould be insurmountable.

VOTES OF THANKS. WELLINGTON, June 15. Votes of thanks were passed to the directors, general manager and staff, acknowledging which Mr Buckleton endorsed what had been said as to trying times which 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 the bank would do all in their power to advance the interests of shareholders.