THE BANK OF NEW ZEALAND

Wanganui Chronicle, Volume 74, Issue 144, 20 June 1931, Page 13

THE BANK OF NEW ZEALAND

| CHAIRMAN’S ADDRESS TO SHAREHOLDERS ANNUAL PROFIT WAS £845,814 BANK STRENGTHENS ITS RESERVES FUND. ! Addressing the shareholders in annual general meeting yesterday, the i chairman Mr W. Watson, Intimated that the annual profit was £845,814, being £102,720 less than the pievious year. I The decrease in the profits is due to increased taxation, to higher cost : of deposits, increase in bad debts, and to lessened earnings on the short term investments in London. The total tax on the note circulation is £5 5s per cent, which goes to the Government free of all expenses incidental to the note issue.

Mr William Watson said:— Ladies and gentlemen, 1 have to apologise for the absence of Sir George Elliot. who left for a visit to Great Britain on March 28 last. 1 presume we may to-day follow the usual custom at our annual meetings and take the report and balance-sheet as read. Before formally moving the adoption of the report and balance-sheet, 1 will take the opportunity of drawing your attention to those items in the balancesheet that call for special mention, and further remarking on matters incidentally affecting the bank. Capital, Reserve Fund and Undivided Profits. 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 £2,845. Shareholders’ funds will thus amount to: — Paid up capital (exclusive of £ ' £529,988 of guaranteed stocks) 6,328,125 Reserve fund 3,575,000 Balance of prolit carried forward 626,001 T0ta1£10,529,126 In addition to these funds, wo 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 Mortgage Department. I" November last, we placed in London on satisfactory terms an issue of £500,000 five per cent. long-term mortgage debenture stock maturing November 15, 1940. The proceeds of the issue were used to repay advances which 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 March 31. amounted to £3,679,957. The average circulation for the year was £3,526,197.

[AH banks here issue their own notes secured by a holding of one third in goL and two-thirds in Government securities. Over and above this backing, the notes are a first charge on al! 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 fur th.ur actual needs. This is shown by the steadiness of the average circulation of ail the banks for the past five years, as follows: 1926-27 6.673,595 1927-28 6.453,265 1928-29 6,372,599 1929-30 6,445,446 1930-31 6,102,022 X\ hen trade is brisk, works arc in progress, or prices are high, the circulation is naturally larger than in a dull i period. The gold and other securities held would enable the bunks 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 per cent. In addition to this direct tax, the banks pay income tax, at present Jss per cent, on the amount of notes in circulation and on the gold and Government securities backing the issue.— A total tax of £5 5s per cent. 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, went to the Government, consequently the increase of 11 per cent, was totally unjustifiable. The banks felt that 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 £lO,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. The relations of gold to currency have been in recent years subjects of many and various discussions, throughou which it may be noted that bankers and other experienced men have sup-

ported 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.

A'ery serious conditions have been brought about at various times aud 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 sec: rity, and in recent years examples have been supplied by France and Germany of the evil consequences of State inflation. Franco paid out State notes until a franc was w'orth 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 arc 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 her people by rendering almost valueless all State and private commitments. Quite recent happenings in Australia in connection with its note currency are so well known that 1 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. IDoubtless, the Government will see the wisdom of extending the period for two or three years to permit of a return to normal condiitons. Deposits. Our deposits at the balance date were £1,572,923 less than March 31, 1930. The shrinkage is in current account balances, which arc down by £2,623,492. Fixed deposits have increased £1,593,072. Government balances arc less by £542,503. Bills Payable and Other Liabilities. In this item there is a decrease of £525,038, the major portion of which is reduction in amount of drafts on | London outstanding. The remainder of th decrease is represented by items of ' no special significance. Profit 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 increased taxation, to higher cost of deposits, increase in bad debts, and to lessened earnings on our short-term investments in London. It is, of course, not to be expected that a new record of profit can be made every year—loan periods conic sooner or later, and, in common with other financial institutions, wo have suffered from the effects of the prevailing depression. We anticipate that our losses from the earthquake and resultant fires in Hawke’s Bay last February will amount to less than £100,000." When these losses have been definitely determined, the amount will be debited to thu Contingency Fund, in which there will remain a very substantial balance. Coin, Cash Balances and Deposits With Bankers. This item at £7,106,-198 shows an increase of £342,897 on last year's li gurus. Money at call and short notice, Government securities and other securities in London, bills receivable in London and in transit. The reduction of £823.361 is due to lower values for the Dominion’s produce. Investments. British and New Zealand Govern ment securities and securities of local | bodies, £8,681,893; these items arc well ; under realisable value. Australian Government securities, £3,548,4-13. These also stand in our books at less than market vabm. 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 i own customers. In times like the pre- ■ sent, it ,is necessary to scrutinise all 4

requests for aceommodatin with the greatest care, not only to guard against the possibility of loss, but also to sec tha our funds are nut being used for speculative purposes, or for purposes alien to proper banking. I” the depressed conditions prevailing, we have felt it to be our duty to meet our customers’ needs right up to the limit of safety. All advances on our books have been most carefully scrutinised, and, bearing in mind that recovery from the present depression may be slow, all bad and doubtful debts have been amply provided for. Banking System in New Zealand. The banking system of New Zealand has been evolved during more than 90 years of practical acquaintance with the country’s requirements. It differs from the British system inasmuch as it has tc deal largely with aiding development of land, as well as assisting in the establishment and encouragement of all other industries essential to I th needs of a young country aud its growing population. It will bo admitted that had the banks conducted their operations strictly in accordance wit i the lines of British banking, the Dominion would not have made anything like the progress it has, and therefore it may be justly claimed that tho system has met the needs of the country, and has enabled tho banks to assist their customers in weathering many a storm with minima of ill effects.

Dividend. r lho dividend and bonus, which are payable in Wellington to-morrow and at tho various branches on receipt of advices, will be at the same rates as those of last year. No change, by reason of present abnormal exchange rates, is being made in tho customary method of paving the dividend and bonus, that is to say, they will bo paid in the currency of the country in which the shares are registered. The Bank’s Deed of Settlement permits of this. Taxation. luxation paid to the Government of New Zealand in the year under review was £54.109 more than in the year pre- | vious. Tho total increase in rates and

■ taxes on the whole of tho bank’s busi- | ness was £86,837. There is no doubt that general high taxation drives money and credit out of a country, but by this I do not imply that New Zealand has, until now, suffered in such a manner; on the’ contrary, it is well known that large sums have been transferred from Australia and invested here. The causes of these remittances were undoubtedly the more stable conditions which obtain here fears of higher taxation, and probably exchange. It has been held by eminent authority in London that money and credit cannot ordinarily be removed from a country, but individuals can, and have been able to, transfer their assets from Australia to other countries by various methods, and to enrich the places of receipt by making investments there. It. is also clear that subtraction by any State of the people’s wealth, cither by inordinate taxation, or by high death and gift duties, to pay for expenditure overseas, which cannot be met by excess of exports over imports, must impoverish that State to the detriment of all within it. Income tax was increased last year by 10 per cent., involving the bank in an additional impost of £17,865. As some of you know, banks in New Zealand are taxed not on what they actually earn in the Dominion, but on what, under an arbitrary and now un-

fair system, they are assumed to have earned; the result being that, as compared with what we would have to pay if taxed as a joint stock company, we were mulcted last year to the extent of no less than an additional £58,841. What the State Derives From the Bank During the year, £594,263 was paid by the bank to the Government of New Zealand by way of dividends and taxa tion, viz.: £ VDixidcnds .. . , . ~ Income tax .. .. .. 196,524 Land tax 18,563 Note tax 133,564 Total 594,263 Rates of Interest. There has boon no change in interest rates within the Dominion since you were last addressed from this chair. Although the demand for money ex- 1

coeds the supply, we hope that ere long it may be possible to bring about a reduction of rates, but as the banks do not control interest rates, nothing can be accomplished in the way of reduction unless certain other important interests can be induced to co operate. The Bank of England rate was reduced from 3 per cent, to 2$ per cent, on May 14. It is to be hoped that the lower rate will tend to stimulate enterprise in the Old Country, though it is feared that the accumulation of funds in London denotaes want of confidence in the industrial outlook. The Bank of England rate has little or no effect on rates here. Exchange. As you are aware, the present rates of exchange between London and New Zealand and vice-versa arc abnormally high, and there is no reduction in close sight. Tho principal factor in advancing rates from time to time has been the necessity for bringing about a reduction in imports to correspond in in some measure with tho reduced value of exports. To a considerable extent this result has been attained, but London reserves, which have been heavily depleed, must bo built up before reduction of rates can be looked for. Further, it is by no means certain that for the present year the balance of trade will be in the Dominion’s favour to anything like an adequate amount. Were it not that the banks held funds on a large scale in London, the rise in ex-; change would have taken place soon?r | than it did and been heavier.

We have resolutely refused to permit our New Zealand funds in London to be availed of for the benefit of Australia, but unfortunately the banks do not control tho exchange position, consequently through channels outside the banks, Australians have secured possession of an appreciable amount of New Zealand funds in London.

A large section of the public does not appear to recognise that whilst the margin between buying and selling rates remains unaltered, the banks derive no advantage either from a high buying or a high selling rate. As a matter of fact, it is almost certain that during the period of adjustment to normality, the banks must lose money on their exchange transactions. Thu position of Australian exchange is also abnormal, and until conditions in the Commonwealth substantially improve, there is little or no hope of alteration. Complaints have been made by New Zealand exporters to Australia that the exchange rate is seriously restricting trade. That no doubt is the case. On the other hand, our bank has funds in Australia far in excess of its requirements—an excess which in present conditions it is impossible to shift. In fact, it would suit us to stop buying any exchange on Australia for a long time to come.

It is well to emphasise that it is the producing, and also the manufacturing, industries of the Dominion, and not the banks, that are reaping the advantage of the present abnormal exchange rates on London. L have now to formally second the motion for the adoption of the report anf balance-sheet. Mr Richard W. Gibbs, said:— Gentlemen, Permit me to thank you for giving me a further extension of office as one of your representatives on the board. Needless to say, the duties during the past year have bei no sinecure, and tho problems which have presented themselves day by day have been quite out of the ordinary and so have been al) the more interesting. So far, however, they have not proved insurmountable, and the result of the year’s work, as disclosed by the balance sheet, now in your hands, should, 1 think, prove gratifying to you all. The board can of course lay down the policy to be followed, but without the loyal and intelligent co -operation of its officers, these satisfactory results could not have been achieved. Those of you who come into touch with our men in your various business capacities i will, I feel sure, agree with me that' we have an excellent staff, second io none—pardon my pride, but you know, until quite recent years, I was one of them. The general manager's virility is well known tu you. and with advaue ing years and added responsibilities, there is no abatement in his resource fulness and zeal in your interests. T have little to add to what has been sail, by tho mover and seconder of the report. When times are bad, the banks come in for the usual abuse and are charged with causing unnecesary deflation. restriction of credit, and so forth. I can only say that so far as we arc roncerued, it has not been found noces-

sary to restrict credit for any legitimate business, ami tho needs of both our country and town customers have had tho fullest consideration. However, do as you will, it is difficult tf satisfy all our critics, but when nasty things are said of you, it is well to remember the old adage “Only trees that bear fruit get stones thrown at them.” Gentlemen, I again thank you.