LIQUID POSITION

Waikato Times, Volume 112, Issue 18808, 2 December 1932, Page 10

LIQUID POSITION

SATISFACTORY OUTCOME. SANK OF NEW SOUTH WALES. DIFFICULT YEAR'S OPERATIONS. At the ordinary general meeting of the Bank of New South Wales, he.d at the head offlee, Sydney, on luesdaj, November 29, 1932, the chairman iMr Thomas Buckland, president of the bank) moved the adoption of the report and balance sheet. Comparing the figures of the banv for this year with those of the preceding year, the combined item of deposits and notes in circulation stands at the large total of £84,508,000 an increase of more than i1ia,038,000, said Air Buckland. Of this, £ 1-1,000,-000 is an increase in deposits, and the small increase in notes in circulation is chiefly caused by an increase in our note circulation in New Zealand. Bills pavable, etc., £5,1(34.000, show an increase of £899,000, and capital, reserve fund and profit and loss accounts standing at over £lo,ioa,ooo, show an increase of £1,200,000. The capital of the hank, as the result of the amalgamation with UlO Australian Bank of Commerce, has b.ecn increased ■ from £7,500,000 Lo £8,780,000. Liquid assets stand at some £37,980,000, being an increase of more than £6,360,000. investments in Government securities have increased by £3,565,000 to £7,656,000. This is accounted for to some extent by the transfer of some of our short-call money in London to investment in British Government securities, so soon as it became evident that there was likely to lie a marked fall in short-eali money rates. Bv this means we have been able io maintain lo some extent the earning power of our London funds without materially reducing their liquidity. This change ~also accounts for the reduction of £ <70,000 in the item “Money at short call in London.” An amount of British Government Treasury bills has been transferred to investment in British Government securities. further movements have been an increase of £4,815,000 in the amount of Commonwealth Government Treasury hills held by the bank, and an item of £733,000 of New Zealand Government Treasury bills appears in our balance sheet for the llrst time. They were issued in New Zealand by the Dominion Government for the same purpose as have been our Commonwealth Government Treasury hills. The issue of such bills provides a lorm of security which can he used by the banks to give temporary accommodation to the Government during the present depression without trenching on available banking resources.

The composite item "Coin, bullion, Government legal tender notes and cash at hankers - ’ stands at more than £11,400,000, and shows a decrease of >*£1,304,000.

Discounts and Advances. Bills discounted arid advances, £64,547,000, show an increase on the year of £0,437,000. This Increase is less than the total of the advances of the Australian Bank of Commerce, Ltd., which came under the management of the amalgamated institution. It will therefore he seen that so far as the combined figures are concerned there has been a decrease in advances. The most striking feature of our advance business during the past 12 months has been its liquidity. We have been ready at all times Lo make advances on sound banking propositions, but these have not been forthcoming in sufficient number and volume to offset the reductions and repayments of advances which have been made by our borrowing customers. Legislative interference in terms of business has been a greater influence in discouraging applicants than even the depression itself. People will n&t venture until confidence that contracts will not be varied arbitrarily by Parliamentary action has been restored. The bank has continued its policy of supporting its customers throughout their difficulties, and set its face, as it has always done, against the calling up of advances, in whole or in part. The recorded movement in advances is an encouraging development after a period of about 18 months of stagnation due to the depression. The bank is now in a belter position to lend than it lias been for some time past. Tin's is the more important as there is already a. new movement in business, giving a greater turnover, and a greater opportunity for the realisation and replacement of trading stocks. This easing of the Australian business and banking position has, however, been cheeked to an appreciable extent by the recently renewed fail in prices of some of our staple products, and the comparative weakness in others. We must look for a considerable increase in prices over the whole range of our exportable products before we can hope for a dependable return of prosperity. Bank premises stand at £2,300,000 —an increase of £500,000. Of tins amount some £430,000 represents the bank premises of the Australian Bank of Commerce, leaving an increase in our own llgures of about £70,000 after making the usual provisions. Contingent liabilities on account of customers are given at £2.6117,000, being an increase of £615,0(10. This represents an improvement in business activity, as such liabilities are almost entirety due to the requirements of trade and commerce. Aiding National Recovery. Your directors have throughout, the year continued to pursue the policy to use the resources and the intluence of the bank lo the uttermost to tiring about a recovery in all countries in which the hank operates. It will be recognised that, one of the chief concerns of a trading hank in a time of financial stress is to provide adequate resources to the Government, provided, of course, the necessity of balancing the public accounts within a reasonable lime is recognised and wholehearted efforts are being made to attain this end. This tlnancial assistance to the Government is rendered necessary because in a period of depression Government, revenues fall far more rapidly than it is possible to reduce Govarnernment expenditure. further, Hie solvency of the general business and producing communities in a time of depression is of paramount importance. This is the direct, concern of a trading bank, perhaps oi equal importance to if as the assistance it renders in public tin.nice, is lo the Government. To maintain solvency it, is essential to take, a broad view: overdrawn accounts must be examined, not in the light of existing

depressed conditions, but from the viewpoint of conditions as they may be when prosperity has again dawned. We can claim quite fairly for this bank that Its attitude to its borrowing customers has not been determined by the immediate interests of the bank's profit and loss account, but by the objective of general commercial solvency. The bank has not only supported its borrowing customers, it has done so at the lowest possible rates of interest. The bank has done all it could to bring about lower rates of interest as a pre-requisite to Die revival of trade and industry. The first reduclion in interest rates was made in Die half-year ending in April, 1931, and further substantial cuts have been made each half-year since then. The bank cannot prosper unless Die community it serves also prospers. Yvitn Die return of more active trade, reduction in unemployment, and Die restoration of protit to industry and production we took forward with confidence to an improvement in Die bank's earning power growing along wild that of its customers, representative as they are of every section of the community.

Satisfactory Profits

The profit for the year stands at £462,960—a satisfactory figure for the conditions ruling throughout the accounting year. This profit is equivalent to about 3.05 per cent, of shareholders’ funds. It is this percentage which is the most reliable indicator from time to time of the earning capacity of a business. it shows the return obtained on shareholders’ funds used in the business. During the last two or three years these funds have been earning less and less—in 1929 they gave a return of 7.1 T per cent., in 1939 Of 5.26 per cent., and 1931 of 4.07 per cent, it must not he judged from this decline in percentage that it is impossible for the bank to earn a higher rate of profit. This will come when genera] business conditions improve. The percentages quoted, which conform to the experiences of business generally, show conclusively that the banks do not engineer a business depression for their own gain.

Your directors recommend Die payment of a fourth and final quarterly dividend at Die rate of os per share in Australian currency. This will make Die rate of dividend for the full year 5} per cent. in these times a peculiar feature of Die profit and loss account of almost every business i$ that by far the greater proportion of the expenditure is not within the control of those directing its activities. Man. items are controlled by enactment of Die legislature, or of minor legislative and administrative bodies appointed by Die several Parliaments. The principal among tliese items are taxation, ami wages and salaries as fixed by industrial awards.

Taxation Burden. Taxation is still Die most serious item of expenditure. The tax-gatherer lakes far too large a proportion of Die earnings of all business enterprises. The burden upon both the earned and unearned incomes of individuals is drying up Die sources of new capita). And the burden of taxation in a period of depression becomes greater as commodity prices fail. The general interests of the community would be served by a reduction in taxation at the earliest opportunity. The relationship between taxation and interest rates is not fully appreciated by many. For our bank it can be said quite emphatically that our average rate on overdrafts would be lower if taxation were less. In other words, any relief from taxation would not primarily affect dividends, but would make *it possible for us to reduce interest rates on money borrowed from us, and thereby to assist still further business recovery. * In our domestic affairs the most important event of the year was Die amalgamation of Die Australian Ban., of Commerce, Ltd., with this bank. Your board and the executive ollicer.-, of the hank are more than satisfied with Die business that came to Die amalgamated institution. The balance street of the Bank of .Yew South Wales will be found <m page 3.