ANNUAL MEETING OF BANK OF N.Z.

Star (Christchurch), Volume XLIV, Issue 144, 19 June 1931, Page 4

ANNUAL MEETING OF BANK OF N.Z.

FINANCIAL POSITION REVIEWED BY CHAIRMAN (Special to the “ Star.”) WELLINGTON, June 19. The annual meeting of shareholders in the Bank of New Zealand was held today, Mr William Watson, chairman of the board of directors, presiding:. He apologised for the absence of Sir George Elliot, who is on a visit to Great BriChalrman's Address. In his address, before moving the adoption of the report and balance-sheet, the chairman reviewed the position of the bank. lie said: There has not been any change during the year in the capital of the bank. It is proposed,to transfer £25,000 from the year’s profits to the reserve fund, making the latter £3,575,000. This is the smallest addition to the fund for very many years. The balance of profit carried forward will be increased by £2845. Shareholders’ funds will thus amount to: Paid-up capital (exclusive of £529,988 of guaranteed stock) £6,328,1 25 Reserve fund 3,575,000 Balance of profit carried forward 626,001 £10,529,126 In addition to these funds, we have ample internal reserves built up over a long period of years. It will be thus apparent that the bank is in a very strong position. Long-Term Mortgages. In November last, we placed in London, on satisfactory terms an issue of £500,000 5 per cent long-term mortgage debenture stock maturing November 15, 1940. The proceeds of the issue were used to repay advances wdiich had been obtained from the banking department of the bank. But few loans were made during the year, only a limited amount of funds being available. Notes in Circulation. Our notes in circulation at 31st March amounted to £3,679,957. The average circulation for the year was £3,526,197. All banks hero issue their own notes secured by a holding of one-tliird in gold and two-thirds in Government securities. Over and above this backing, the notes are a first charge on all the assets of the individual banks concerned. There can therefore be no question as to the safety of the notes, nor can there be inflation or deflation, as the notes in circulation are simply those required by the public for their actual needs. This is shown by the steadiness of the average circulation of all the banks for the past Arp years, as follows: 1926- £6,673,595 1927- 6,453,265 1928- 6,372,599 1929- 6,445,446 1930- 6,102,022 When trade is brisk, works are in progress, or prices are high, the circulation is naturally larger than in a dull period. The gold and other securities held would enable the banks to increase the circulation to more than double what it is, were that necessary. • The direct note tax was raised as from July 1 last from £3 per cent , to ; £4 10S p.C. In addition to this direct tax, the banks pay income tax, at present 15s p.c. on the amount of notes in circulation and on the gold and Government securities backing the issue. A total tax of £5 5s p.c. Cost of the note forms and all Working expenses in connection with the circulation are borne by the banks, so that the whole £5 5s per cent goes to the Government. Practically the whole of the profit on the note issue when the tax was 3 per cent weht to the Government, consequently the increase of 13 per cent was totally unjustifiable. The banks felt tnat this increased imposition should be met by some means, and therefore increased the half-yearly charge to customers for keeping accounts by ss. This increased charge still leaves this bank to face a loss of £IO,OOO to £12,000 a year, as about 30 per cent of our circulation is due to the operations of the Government accounts, on which no charge is made. Gold and Currency. The relations of gold to currency have been in recent years subjects of many and various discussions, throughout which it may be noted that bankers and other experienced men have supported a backing of gold as security, whilst others have considered that the note issue of a country could be safely based on the security of the State without any tangible support. Very serious conditions have been brought about at various times and in different countries by giving effect to the latter view. Presumably, there might be no limit to what a Government might consider the value of State security, and in recent years examples have been supplied -by France and Germany of the evil consequences of State inflation. France paid out State notes until a franc was worth in sterling only one-ninth of its pre-war value. Subsequently, the franc was stabilised at about one-fifth of its pre-war value, and debts and contracts incurred previously to these changes are now considered to have been repudiated to the extent of four«-fifths of their original worth. Germany went still further, and to a large extent destroyed the wealth of hexpeople by rendering almost valueless all State and private commitments. Fiduciary Currency. Quite recent happenings in Australia in connection with its note currency are so well known that I need only allude to them. It is obvious that fiduciary issue by a State, without gold backing, while inflating prices temporarily, are not adaptable for payment of imports, or other exchange purposes. These remarks are sufficient to make it evident that the currency of the Dominion is conducted on sound and safe principles, is of such elasticity as to cope with the requirements of any expansion in trade, and is very remunerative to the State. The proclamation constituting notes legal tender expires in January next. Doubtless, the Government will see the wisdom of extending the period for two or three years to permit of a return to normal conditions. Deposits. Our deposits at the balance date were £1,572,923 less than at March 31, 1930. The shrinkage is in current account balances, which are down by £2,623,492. Fixed deposits have increased £1,593,072. Government balances are less by £542,503. Frofit and Loss Account. The profit for the year was £845,814, being £102,720 less than* for the previous period, the decrease being due to in-! creased taxation, to higher cost of 1 deposits, increase in bad debts, and to lessened earnings on our short-term investments in London. It is, of course, not to'he expected that a new record of profit can be made every year—lean periods come sooner or later, and, in common with other financial institutions, we have suffered from the effects of the prevailing depression. Wo anticipate 'that our losses from the earthquake and resultant fires in Hawke’s Bay last February will amount to less than £IOO,OOO. When these losses have been definitely determined, the amount will be debited to the Contingency Fund, in which there will remain a very substantial balance. Investments. £ British and New Zealand Government securities and securities of local bodies . . S,GSI,S93 These items are well under realisable value. Australian Government securities 3,548,443 These also stand in our books at less than market value. Advances and Bills Discounted. These items together show a decrease of £709,374, over £400,000 of which is due to reduced imports from Britain. There has been an active demand for money, and we have been able to meet all legitimate applications from our own customers. In times like the present, it is necessary to scrutinise all requests for accommodation with the greatest care, not only to guard against the possibility of loss, but also to see that : <>ur funds are not being used for specu- | lative purposes or for purposes alien lo proper banking. our customers’ needs right up to the liriiit. of safety. All advances on our books have been most carefully scrutinised and. bearing iti mind that recovery from the present depression may be slow, all W... 1 and dop.Mful debts have been arnplv proglided for. Earthquake In Hawke's Bay. f O n February 3 last an earthquake and fires resultant therefrom caused the

death of some 250 persons and consider - able monetary loss. Very- exaggerated reports of the disaster were cabled abroad, which adversely affected the financial credit of the Dominion to an entirely unwarranted degree. Compared with the total wealth of the Dominion, that which was destroyed in Hawke’s Bay represents but a trifling The necessary steps are being taken to repair the damage. Great credit is due to members of our staff for their energy and coolness in coping with the catastrophe axxd saving both life and .property. None of the staff or their dependents was injured. After referring to other matters affecting the bank, Mr Watson moved the adoption of the report and balanceDoyen of Bankers. Sir Harold Beauchamp, in seconding the motion, said:— In the first place, I should like to congratulate Mr Watson upon his appointment as chairman of this great institution. He has been associated with the bank as a directoi* since 1594 and his elevation to the chair places a coping stone to the long and honourable career he has had as a banker, in fact I think he may now be described as the doyen of .the bankers of. Australasia. Secondly, I am sure you will be gratified with the results achieved by the bank for the past financial year, especially when you take into account the adverse financial and economic conditions with which we have had to contend, these conditions being of a worldwide character. Our ability to give the usual return to shareholders is in no small measure due to the sound policy that has been pursued in the past—that is by building up substantial reserves and making the fullest provision out of profits for losses which the bank has sustained from time to time. The dividend and bonus in the eyes of the public may appear large, but I would repeat what has been often mentioned at gatherings such ns Hi is—that return represents only a moderate one upon the actual resources of the bank. Ir thest factors are considered, this return would represent no more than, say. 7 per cent upon the total of shareholders’ funds employed. As to our present position and prospects, I have no desire to pose as a prophet or indulge _ in any predictions, but I would observe that in my opinion when the tide turns it will be discernible first in the United States of America, and secondly in Great Britain. Hoarding of Gold. It seems to me that our present difficulties would gradually disappear if, instead of hoarding gold and endeavouring to shut out imports, the United States were to appreciably lower the tariff and resume lending, and if Great Britain would give such a measure of preference to oversea Dominions as would enable them to more successfully compete with foreign exporters of produce to the Old Country. As to the adverse rates of exchange now ruling,-we can look for no definite relief until values of produce improve but, as I have already said, that relief In my opinion will come from witiwm and not from within. In conclusion, I should like to quote a short extract from a well-known American paper—the “ Saturday Evening Post ” —which may have ‘a tonic effect upon my hearers. That paper says:— “The literature of all ages is filled with prophecies that never came true. When Edison exhibited his incandescent lamp, the stocks of gas companies dropped because it was predicted there would be little further use for gas. National magazines predicted that the current business slump was nearing an end in the fall of 1920. I have before me statements made by business aixd political leaders during all the business depressions of the last generation. In every case, very few prophets correctly forecast either the decline or the recovery in business. But it has never failed that when times were good they got bad, and after they were bad they again got good. The surest thing in the world is change.” A Difficult Tear. Mr Richard W. Gibbs, speaking In support of the motion, said that the duties during the past year had been no sinecure, and the problems which had presented themselves day by day had been quite out of the ordinary and so had been all the more interesting. f° far, however, they had not proved insurmountable, and the result of the year s work, as disclosed by the balance-sheet, should, he thought, prove gratifying to all. are bad >” continued Mr Gibbs, the banks come in for the usual abuse and are charged with causing unnecessary deflation, restriction of credit, and so forth. I can only say tnat so far as we are concerned, it has ifoun ? necessary to restrict f ° r any legitimate business, and the needs of both our country and town customers have had the fullest consideration. However, do as you will, it is difficult to satisfv all our YiSYt but .'f hen "asty things are yOU ’A t ? s well to remember the old adage—' Only trees that bear fruit get stones thrown at them.’ ”