THE COST OF BANKING SERVICES

Wanganui Chronicle, Volume 83, Issue 142, 19 June 1939, Page 6

THE COST OF BANKING SERVICES

t.XDI't'TING about one-half of the banking business of the Dominion and having very slight connections elsewhere, hi comparison with its Xew Zealand business, the Bank of Xew Zealand provides an excellent illustration of the cost to the public of banking services in the Dominion. There are several reasons for the misunderstandings that are eurrent concerning the cost of banking services as exemplified by their profits. .In the, first, instance, the Bank of Xew •i' aland has maintained its dividend at, an unbroken .10 per cent., thereby providing the shareholders with a steady income and also causing the shares Io be maintained at relatively stable, levels. Secondly, the amount of the, relationship between gross profit and net profit appears to be attractive for the net profit, is in the region of 35 per cent, of the gross profit. Thirdly, the net profit for the year represents the healthy sum of £586,000. l-'inally. there is in the balance-sheet, the enormous sum of £50.708.000 as the total of the assets. Each of these figures are capable of creating a wrong impression and when taken together they certainly do so in the minds of many people. The total of £50.708.000. however, is subject to an interesting qualification. Over 1133.228.479 is owned by the. depositors, 'the depositors place their money with this institution for safekeeping, which is a very desirable service indeed, and for easy use by means of the cheque account, which facilitates trading. A fair portion is. however, deposited for the purpose of earning interest. Xow each of these services are not costless. Experienced officers arc required, convenient, premises have to be erected, a large mass of detailed records has to lie kept, up to date, losses through borrowers not being able to repay Joans have to be provided for. and there are expenses in other directions, not the least Government taxation, which is very heavy. All of these outgoings have to he provided for out of the, interest charged on bank overdrafts, on discounts on bills and on the interest on Government and other bonds. The balance above these expenses provides the institution’s own profit. The relationship of the profit received by the bank to the assets used in the earning of that profit is f interest, because it, represents the net charge of the bank for its services. The relationship which exists between the sum of £50,708,000 representing the said total assets and the net profit, for the year, £586,000, is a little over one per cent. It would be difficult, indeed, to eonc.ive of a service of this nature costing less. Banking services cost the jmblie but one per cent, of the assets used. It is clear that the. banks in New Zealand do not make enormous profits when the risks that they run by using and guaranteeing against loss other people’s money. If is clear also that the banks do not create credit by making entries in a book otherwise they would never be concerned to accept, deposits on which interest is paid.