BANK OF NEW SOUTH WALES

Evening Post, Volume CVIII, Issue 133, 2 December 1929, Page 15

BANK OF NEW SOUTH WALES

PRESIDENT'S ANMUAL REVIEW

A NOTE OF "WARNING

. Mr. Bnckland said: In rising to' move the ad.option of. the report and balancesheet'l shill review the main items and compare them -with last year. The .- movements;taken as a whole.are indicative .of tho conditions affecting us today. 'There is evidence of the marked drop during recent years in the prices of our staples, of.tho continuation of drought conditions in many districts, «nd of increasing ■ co/ts and the lack :, •£ continuity affecting industry .and •ommerce to the- disadvantage of all. TaJiingithe less important items first, the noto circulation in New Zealand V shows': a "small..decrease. Bills payable •at ■ £7,284,000 represents a~. small in- - crease of £84,000. ■-■:.. Bank premises are £225,000 higher - and stand'at' £-1,450,000. The increase r -. is largely due.to the new head .office building and the new building for our Brisbane 'branch.: -Unfortunately, the progress of the work on these two buildings has been delayed. We hope to be able/to occupy the new premises :iv Brisbane in about three or four „ months, and to transfer our Sydney into 'tho rear portion of-the •new head, office building towards the = ,-end-of January next. The old building at the corner of George and Wynyard . streets will then be handed over to tho contractors to be pulled down in preparation.for the front portion of the new structure. The building of this is expected to take three-years. We may therefore have to hold three more an- .. nual-meetings.in this room, as the administrative offices will remain in Endeavour House to avoid making a double. transfer. • Having dealt with these items, I can best explain the movements under tho other-^headings by showing their relationship to each other and to the conditions at present obtaining. SLOWING UP OP PROGRESS.

Deposits^ £66,056,000, show a small - increase of £1,541,000. This, taken >with the like experience of other banks, - is evidence of tho slowing-up of our national progress, and a lower capacity to provide for the development of the many and varied industries of the community. It seems necessary to repeat what I said two years ago iii this connection,- The drain on local funds, as the result of borrowings by Governments arid local authorities, appreciably affects the accumulation of deposits "This "in turn reduces the funds avail- -• able for.advances, and for that private enterprise upon which our progress und . : wealth -mainly depend. Without a steady and appreciable increase ir. deposits- year By year the banks cannot extend their support, .to. the- development of- the community: The banks ;.' cannot, create'creditexcept by' resort- - ing to'" inflation, .with its painful aftermath.. .... ■..'-■■ ■; This leads nic "to th©- point I wish particularly..to.stress. "The people as a whole _wiH bring about their own undoing il they pursue" the policy of past years.-with its extravagant and often expenditures. Such P°fe ief; wHh t|i(?irireductiou^of.• output —ribt-'iiccessarily 'live' value .of. output —must bring hard tinies and force upon us a lower standard of living. When these are combined with a serious fall in tho prices obtainable for our -chief „, staple, wool, and a considerable reducv- tionin-the quantity of another, wheat, due to. adverse weather conditions, the outlook is hard indeed. Tho figures of t; the balance-sheet give full support, to ■;-the .position thus outlined.. L--!; Advances.have increased by £8,074----000, making a total of £59,427,000; "When ■.taken.lwith the. comparatively small'increase in deposits this, is a striking -testimony to the way in which bur. customers-have found it necessary to lean. upon us during the past year, and when it is realised that the experience of the,other banks is similar to ours in. this department also, it behoves all of us to: take ■ stock of our position, both as a community and as individuals. The. .money for "these increas-:---ed ; advances has been provided mainly from our. liquid-assets, Government and other, securities, Treasury bills, and caah, which show reductions of £2 074 - ;.■ 000, 82,000,000, and £4,090,000 respectively. On the' other hand, money at short call, has increased by £1j220,000, and- other items show small increases. Last year.our. holding in cash was on ■ the high side for this time- of the year, „.. so that the reduction is not as import-S--an-t as it-may'appear at first sight. These figures will begin to readjust themselves as the -proceeds of our produce come to. hand and the community o- accommodates itself to our altered eon---<Htidns/-This readjustment will, how- ;' ever, tend to be slower than in past years. .The:prices and quantities of our primary' products are so much less and the: national income so much . smaller. '•■■'.

■ The eapitalis the same as last year, ■•■•■ £..7)500,000, and-it is proposed to add °.; £.250,000 to- tho reserve fund, making I':, it .£6,150,000. ; . ...

CONSERVATION OF RESOURCES,

L . In view of the serious fall in tho prices of-our staples over recent years, I', there must follow an appreciable fall in the values of our lands and other ''- assets of the community. -Your directors therefoi-e.fGel that, tho prudent course' is; to conserve the resources of the bank. It is .proposed to pay the usual-dividend at the- rate of 10 percent: per- annum, but not to pay a bonus on this occasion. The share;'holders : . have had the benefit of four bonuses in succession, ' or,' in other words, have received in four years dividends which would in tho ordinary i;. ••course ;KSve.--been:: -paid .oy er'. .a -period •;•' '•■ of -£ve-yeai's. ■'- ; .'.' -; ". '.:" ",.•.

"'l'his.-decisioii will not etfme altogether as a surprise to' you, as I have' warned ymr;«n each occasion- that the: bonus is a matter of each-year only, and not ■tp.be.taken,as.a precedent or.an earnest of continuance.- liv. 1927 I asked the newspapers -not toinclude tho bonus when stating, the rate..of return "on the quoted pricV'of mir shares. Thisr advice, I regret to say, was utterly dis--regaraecT;- - -

TAXATION BURDEN.

Before leaving our own immediate affairs it is desirable that I should draw-ybirKattention to'tho burden taxation is becoming in our own particular case. The bank has paid £350,----086. during the year.- -This is an increase- 0f:>&55,741 on the amount paid last year and of £79,019 on the- year before. Taxation .. now represents a charge :.oi-. £i 13s:.'4d. per aenfc. on our capitals a ..charge- winch, in two - years has' risen- Bomeiyhat ovej 1 perj cent. Turning, now- to conditions generally, we expect" to-find- some districts having good seasons and some bad in a business3s6yeruig: the1 .'large areas'%e do.' The. ...winter iii; ■;TainiaTi.iaJ 'ha.s been rather-severe.- The western--parts of Queensland and Js Tev South Wales are still--'-' Srought-sfcficken,:: as are tho north-western parts .of. Victoria and tfce northern portiona of South Aus-

THE NOTE ISSUE.

LOGAI.: BORROWING,

:: The/address of the president of tho Bavn'.k .of New .South Wales, Mr. Thomas Buekla'nd,. in moving the adoption of the report and balancesheet, at the annual, meeting of shareholdeiii, is of particular interest on the present occasion. Mr. Buckland (whose? speech, by. the way, was composed aiid printed, btdore- tho Budget proposals, .of the Commonwealth Labour Government were brought down a tew days ago) traverses the trend of ■events-in private: and public financ.6 in Australia and issues a note of warning which must command seriou.3 attention in this Dominion aswell- as in the Commonwealth.

tralin. Western' Australia, generally speaking,", is ' having -the best season all round of' the Australian States, although t he wheat crop will not bo as large as wan hoped for some couple of months ibstck. AVhilo recent rains and cool * weather have improved the outlook for the wheat harvest in Mew South Wales, Victoria, and South '. Australia, the yield will bo much ibt)low average. The wool clip- will bcr considerably lower than last year, anUl with the continued fall in prices retuvrns in most cases do little more than pa vy expenses. It is cheering to be able - to report an improvement in. the beef c u.ttle industry, which has suffered so sev-erely for some eight or nine years.-; Ais to the future, the season is opening with more promise of good rains, and .we look forward in the hope that the long drought will pass from pur westi irn areas at no distant date. CoulcTV*e but settle our industrial troubles a;»d reduce our costs of production tq en able both primary and secondary indtist ties'' to- work on a profitable competiti re basis with the rest of the world, an<i secure iv their freedom from strife, the present trade depression would sotku pass.

The seasons in .JSTew Zealand have been goodaiidthe .spuntry is prosperous. The external trade shows a substantial balance in favour oif exports, while Australia's balance is iWie other way. Conditions in Fij i are good, despite lower prices for sugctr and oopra, as are also those in Papua and the Mandated Territory of New Gi tinea.

Before concludin;'; I wish to refer briefly to several masters of current interest. . ',

REDUCED AUSTRA3WAN EXPORTS,

The reduction in tho""| quantity of our chief exports, due to th :e drought conditions which have prevailed over many parts of Australia, coupled with the continued fall in valueii, is having the effect of decreasing A- ustralian funds abroad. These funds are required for the discharge of Governi vent and other obligations, and for the handling of Australia's external tradij- Excluding such outside influences :is borrowings abroad by Governments a nd others and the investment of capital': from outside in Australian ventures, imports will always adjust themselves to exports, but with a lag—if exports increase imports should increase at a somewhat later date; while the converse :Is true that' imports will decrease folloi ring upon a decrease in exports. It wo jild be very unwise to. attempt to correVst the present position by placing an umbargo on imports generally or on sp twjified imports. To-do:so would in tih* first instance damage pur good tnulo name, then create injustices among the trading .community according to thvo way in which, different sections are plavced with regard to their external commitments and further expose individual traders to- the risk of-damages for broach of contract, etc .On. the othe a: hand, should prohibition of imports beewme effective, wo should lose our Onstoms revenue and ultimately be unable'to sell abroad our surplus products--:wool, wheat, etc. These products would then become' valueless^ or of little ivaliie,' as production '. is far in excess of'; Australia's capacity to consume, an<?i disaster would be the result. . '

As against this question of restriiitoon of imports, we have certain section? of the community whohave restored to;, or wish to- resort to, artificial-means of controlling the realisation of their, iproduce. - I' do not think that any sifcch artificial tampering with the course of marketing wrll in the end-achieve tie objects aimed/at,.but the serious aspect of the case, from. our. point of view, is that t those who have sponsored suxih schemes have apparently overlooked.the question of finance. . How is it possible tor us to carry over a considerably extended per'.od the product already harvested or shorn, while at the same timtv wo are called upon to finance the growing harvest or clip? In times when money is plentiful.it might be possible to go a long way towards achieving this object, but in a period when our loads are already heavy it is very doubtful whether our financial resources will enablesuch schemes to be carried through without denying the necessary finance to those in need of it for the current season's requirements. There is another aspect of this question. It is unsound for the producer to become a speculator in his produce.

It has been-suggested that proposals are being considered to extend the note issue. It is a feature of any elastic currency system that it should be cap-able-of extension to meet the seasonal requirements of the community from tune to,time, but it is a very different matter when, either by design or otherwise, reduction- in the percentage of goldbacking occurs apart from seasonal requirements. If by design, such a movement, when divorced from the genmnc trading requirements of the community, becomes inflation, bringing about higher prices with an increased cost of living, which bears most hardly on the workers and those on fixed incomes. '':; ■' . ■ -. : ■• ■

Any SU ch inflation would increase the burden which is; already a heavy one upon our exports/and consequently, our primary-industries;- -while on the other hand it would encourage imports. Another effect would be the continued drain of gold until no doubt resort would be hadtofan embargo on the export of -gold. The Australian note would then become inconvertible and the doors would be flung wide open for inflation, in.its worst, form... The proper means to cheek any such drain would., be -to.-Jaise the interest rates and so preserve the common measure of value wer have to-day with all other .commercial countries.- ■' '-' -

... Another, proposal is that all-borrow-ing by boyefninenfe :md local authorities should be restricted to the Conimori.WQaltJi .and.that no .. loans.. should be raised abroad, a policy with which I agree;. To adopt this policy now, however,-, would-, restrict all development work in Australia" to such proportion of the amount of tho annual savings of the Australian . community as could-bo'at-tracted to investment in such loans To borrow beyond this would create inflation, which, has been referred to above,, in. ...connection .with the note issue. In a partially developed country such as Australia it "is necessary for a time that capital in addition to the savings of the community should be attracted frpm^outsi.de to enable important schemes of" developmental works to be carried Sn-'.'"To refuse absolutely to accept capital from abroad would be to slow .up our-development suddenly and limit if-'to-our; own capacity to undertake it. The "latter is the more desirable course^ tint -lia-vmg pursued such a policy of •■extenial- borrowing"' for many decades, to turn', round now and limit borrowing to the funds available in the Commonwealth would bo io increase un-

employment far beyond tho conditions now obtaining.

Largely owing to tho tremendous wastage of accumulated capital during tho war and the policies pursued more or less throughout tho world during and since then, the . supplies of available funds fall short of requirements and rates of interest are tending to harden throughout the -lnancial world. Owing to this there is no doubt that we shall have to pay more for our requirements m the immediate future. Should a policy of borrowing internally be persisted in, the funds so obtained must be withdrawn from the fund in use by the ebnyaunity in its tradr ing and industrial activities, both primary and secondary. It is easy to see, therefore, that the employment given on the one hand would increase the unemployment on the other, while the withdrawal of necessary finance would tend to weaken or destroy a proportion or industries already existing, and the income.available for taxation for Government purposes would lie reduced over the whole community. The Loan Council ought to advance warily and not be led away into great additions to public indebtedness, whether internal or external. The economic: burden of an internal debt is just as heavy as that of au external debt.

Much is made, and rightly so, of the distinction ■ between borrowing for productive and for unproductive expenditure. I am afraid that much of our so-called productive expenditure is in reality more or less unproductive. "The simple practical rule for productive expenditure is, that after a term tff years the undertaking should repay the original expenditure, *' in addition to providing> interest, depreciation, etc., during. the currency of the loan. To the extent that our .loans, are not fully productive they are v a burden to us, and unproductive expenditure tends to. leave nothing behind but debt and unemployment..

HIGH COST OF PRODUCTION.

Our borrowing policies in the past have contributed materially to our unemployment problem.' The scale of borrowing has meant inflation, with rising prices and disordered trade. With our arbitrary systems of wage fixing this policy meant higher and yet higher wages. We- cannot have continual and general rises ' in wages and keep the costs of production within economic limits.

Taxation on' capital will indirectly .affect the wages of labour, and so far tend to lessen the productive power. Taxation is also a feature of the'costs of production.

The serious reduction in our national income during recent years* must impress everyone with the urgent necessity of reducing the costs of production as well as public and private expenditure. We must realise now that tho wastes of war and of unproductive expenditure in . the sense I mentioned above can only bo made good by greater effort. There is no other way out. Expedients, such as borrowing to provido employment, inflation of the note issue, or the maintenance of high prices by fixing money wages or restricting output, will lead us to harder times and greater difficulties. Expenditure must be reduced. There is abundant evidenco in the financial columns of the Press that capital is already having to face the readjustment.

Labour as a rule benefits by falling prices and loses by rising prices.

READJUSTMENT NEEDED.

Are we as a people incapable of facing the position we find ourselves in? Are we able to keep up artificial rates of wages and working restrictions the while repeated applications to the Courts show-that-real wages, that is, purchasing power, do not follow them? Is it sound to follow the doctrine of: high wages-for some, while others cannot find employment at that figure? Is it not better for all to work on a lower nominal wage? Couid not the readjustment be made by small amounts monthly spread- over' an extended period, and /soreach a sound and profitable basis with as. little injury to trade and industry as possible'? It is imperative that we should be able to produce both in: the primary and secondary spheres at a cost enabling us to sell at a profit in competition with the outside world, and, I emphasise, to do so without artificial aids such as bounties,' etc. - :

The serious increase in taxation is another feature of the high cost of production. This burden is accentuated by the uncertainty, from year to year, in the incidence of taxation and by the administration of the various Acts, which is too often unsympathetic and failing in appreciation of the needs and difficulties of the taxpayers concerned.

THE COMMONWEALTH BANK.

:, The last suggestion. I propose to deal ■with is that the 'Commonwealth Bank should be made a People's Bank. Those who set this before themselves as their l>olicy do not define the term "People's Itank,?' but it has a specific meaning in domestic banking. Suffice to say here tUat a People's Bank is not a trading bi\nk in the ordinary sense of the term. It:. is a co-operative credit institution to assist wage-earners and small husbaridry. I take' it that what is meant is ai trading or commercial bank. We have a population of about six and onothiriU1 millions. The trading and savings banlks of Australia, and in this connection we include -also the- Commonwealth Banic, have 2945 branches with 5468 agencies, a total.,of 8413 points at which, banking facilities are offered to the cipmmunity; This works out approximately at one for every 756 of the population. It can thus be seen that there is no reason to be adduced from I the dearth of banking facilities to j | demand.; the conversion of the Commonwealth Bank into a People's Bank. On tho .other hand, it is necessary to point out that over a period of years the Commonwealth Bank in co-opera-tion witbt- the.; trading banks has been gradually making progress towards becoming tSie Central Eeserve Bank of Australia, pad thus the keystone of the financial ar-eh.. Consultations have been had with itecognised authorities on this subject,; and the. principles as laid down by thism have ever been kept in the forefront of the board's policy. To alter thxis policy would be to destroy tho woiik of years. Tho Commonwealth Bank , would then become involved in the; ordinary vicissitudes of trade, commip'ee, and industry in the same way as the trading banks are. As it could not then fulfil the functions of a Central. Reserve Bank, being mr volved in the. sa;m_e way as the trading banks, and ha\dng its assets in the same largely uuKquid form as a trading bank must meeessarily have, the support of the latter would of necessity have to be withdrawn. The financial position of Australia would then rovert to what it. was. in .the first few years of this century, wlliere every bank had to stand-on its ow;n feet. Naturally the :promoters, of the Commonwealth Bank take pride in Jjfc, but would it not be an achievement f;lr beyond what its sponsors intended were the present policy accepted and the Commonwealth Bank, with tho assistance of the trading baiiks, allowed to* proceed on its way te achieve the gretit and outstanding distinction of becoming, when the time is ripe therefor, Ahe Central Reserve Bank of Australia.?

_In conclusion, I wish Vfco express the directors' appreciation of tho work of the-staff throughput- the- past year. During that.period .Mr. '.Oscar Lines, our general manager, retired, and Mr. A. C. Davidson was appointed in his place. . ■_ . ..-...::•. ;: :. :. ■■._\ .~ It is .with: profound regret that I refer -to the untimely dea.-tfh of one of our dirDctors,' tho late Mr, JP. B. S: Fallcirier", an'd""bf one' of Vpi-ji- auditors, I the late Mr. W. Harrington.-Palmer. We wish to place on record tfre valuable services they rendered Ore1, bank, the 'former during the eleven yesurs ho wus

a director and the latter as an auditor for periods extending over the last 27 years, and to express our sympathy with those whom they have left behind in their bereavement. To fill the vacancy on the board Sir Kelso King was asked to join the directorate. —Extended Report Published by Arrangement.