BANK OF NEW ZEALAND

Hokitika Guardian, 18 June 1926, Page 4

BANK OF NEW ZEALAND

AXNUAi. M EFT INC. WELLINGTON, June 18

At (.lie annual meeting <;t' the Bunk of New Zealand to-dav, Sir George Elliot., 'Chairman of 'Directors, presided. and said:—The Directors’ lieport and Balance Sheet .for the year ended hist. March, 1920. having hccii in your hands for some days, 1 will now deal hrielly with those items in the Balance Sheet {lint call for comment.

The capital issued to shareholders as at Ist April, 192), has been paid in full, and appears in the Balance Sheet before yen. Of the new shares issued, 1,232 were not taken up by shareholders entitled to them, and they were, therefore, submitted for sale by tender. They realised an average premium of a fraction under £1 17s (id per share, and the premiums aggregated £2,310 ].6s, the whole of which, in accordance with the Bank’s Deed of Settlement, has been transferred to the lieserve Fund. It may interest you to know that our Reserve Fund is invested in British Government Securities. PROFIT AND LOSS ACCOUNT. The profit earned from the ordinary operations of the Bank for this year amounted to £912,100 1.3 s id, being an increase of £92,875 Is yd over that for the previous period. This increase is mainly due to the employment of the £1,125,000 of new capital, nearly all of which was paid tip early in April, 1925,'.and to the surplus over the book value of investments which matured during the year. DIVIDEND. The dividend, which is payable in Wellington tomorrow, and at the various branches on receipt of advices will he at the same rate as that of last tviear; but, next year, without making any definite promise, the Directors hope to he in a position to nay a bonus of I per cent on the Preference “B” and Ordinary Shares. This statement is being made now so that all shareholders may have early information of a probability tlntt may eventuate a year hence. , ’ DEPOSITS. Oitr deposits til the balance date were £l,O-12.000 more than at 31st March, 1925. Current Account credit Inlances of the public at our New Zealand branches decreased by nearly IS] ,20!?,BO:). accounted for largely by i.he local issues of Government and Local Body Loans. Fixed deposits and Government balances, however, show satisfactory increases. ADVANCES AND BILLS DISCOUNTED. On the- oilier band, advances and bills discounted amount to £22,062,(390, being art increase of £2,048,411 on the previous year’s figures Owing to the shrinkage in the Dominion’s exports and increase in imports, customers have found it necessary to loan on the Bank to a greater extent than during the previous year. Indications point to the probability of cur still being .called upon for, extra assistance until next season’s produce returns .become available. Owing to the strong financial position of the Bank, our resources are ample to meet, all demands likely to lie made upon ns. NOTE CIRCULATION.

The increa.so of £275,548 was clue to cash roquicements of customers for tlio Easter holidays, which commenced on 2nd April.

EXCHANGE AND CURRENCY. Amongst those whose views are entitled to respect, there is still an acute difference of opinion as to whether or not the reversion to the Gold Standard was premature. lie that as if may, this at least, we do know; that since the remov.il of the restriction, exchange difficulties in New Zealand have disappeared and primary producers have materially benefited. •Selling rates on London are con-

siderably less than the cost of shipping gold : the same remark, to a. lesser degree, applies to exchange in Australia. Tt was hoped that one important

result of the reversion would he the cheapening of money. So far. However. this has not been effected, although the 15 ink of England reduced its rate by stages from 5 per cent to 4 per coni ; but. owing to the outflow of gold it was found necessary to again advance the rate to 5 per cent. Should notes cease to he> legal tender, this Bank would require to make provision for a reduction of two millions in its note circulation. This would/ necessitate the realisation of British Government securities, and the importation of two millions of sover-

eigns, otherwise our holding of gold in the Dominion would become unduly low. A change over to a gold currency would not make any material difference to the profits of the Bank, but it would mean a considerable loss of revenue to the country.

While the note circulation is without doubt a convenience to the Banks, it is not the profitable privilege so many people suppose it to be. Figures show, and have shown for years, that we are selling more to the United Kingdom than we are buying and buying much more both from other British Possessions and Foreign Conntries than they are buying from us.. As I stated at our last annual meeting, it might be possible to make such adjustments in our "Custotns tariff as would tend to bring our exports and imports to and from various countries more on an equality.

THE NATIONAL FINANCES. The net surplus revenue—£l,lss,o79 —of the Dominion for the year ended ,81st March last, although arising mainly frnin Customs duties on abnormally heavy importations, is a very satisfactory indication of prudence in the conduct of the country’s finances. This prudence is also reflected in the .successful notation, a few weeks ago, of a 5 per cent loan of £6,000,000 in •Loudon .it 98. V, which was over-sub-scribed by tbc public. , TAXATION. The burden of taxation is still very severe, and there does not appear to be an early prospect of a substantial reduction. Taxpayers will always grumble, but provided ' prudence and economy are exercised by the Government in its administration, we should all accept, the position with as good a grace as possible, never forgetting tlyit we are still paying the price l , and must for many years continuo to pay the price, of freedom from foreign domination.

LAs you are aware. Government in 1921 bad to come to the rescue of deposit-taking Companies by proclaiming a moratorium on all deposits, with the exception of Bank deposits. It was hoped that those Companies would benefit from that experience, and i onduct their businesses on sounder lines in (he future, but. unfortunately, deposits at'3 again being freely taken. Moratoriums are not calculated to improve the credit of any country, ami if, iu t!io future, a position similar (n that of 1921 arises, the Government should consider whether it would not be in the best interests of the country to allow mailers, without let or bindranee, to take their ordinary and ivitural course.

LONG-DATED LOANS. The question of creating a special department of the Bank for the purpose of making loans on the amortisation principle, has, during the past few months, had the careful consideration of the Directors. At present this class of business is undertaken mainly by the Government Advances to Settlers Department-, which is the largest single money-lending organisation in the country. On 31st March last its existing loans amounted to £30,000,600 made to over GO.OOO borrowers. There appear to be many reasons why the activities of this Department should not he much further extended. Apart from the political aspect and from the fact that little revenue Inway of taxation is obtainable from the department as at present constituted, it seems that loans for its extension are not received with much favour in London, while extensive borrowing in New Zealand would hav o a tightening elfoet on the local money market, with a consequent tendency to increase interest rates. , As Banks have the machinery in existence that, would enable them to conduct a lending business of this description more cheaply than any other organisation in the Dominion, we have decided, subject to Parliamentary authority being granted, to set up a department for the purpose of making long-dated 'loans on ail amortisation basis.

Authority will be sought to 'enable , the Bank to raise ‘£1,300,250 of new capital to lie styled “Long Term. .Mortgage Capital,” and also to raise by Debenture Issues as and when ienquired, three Unit's the amount of this special capital. The Debentures would be secured on the “Long Term” loans. The amount of loans outstanding would he limited to the amount of the new paid-up capital and debentures issued, and no deposits nor any of the present capital of the Bank would ho employed in this new line of business, except by way of a limited advance pending th? issue of the new capital ai d debentures.

The amount of “Long Term 'Mortgage” capital proposed to he raised is one-quarter of the amount of the p’osent capital, so that when all the new capital is raised it will represent one new share for every four existing shares. It may be some years before it becomes necessary to raise the whole of the capital, though, as I have said, mortgages for long terms oil the amortisation system are growing in favour throughout the Dominion. t'ncler this scheme it is proposed ] that, loans should be granted by the Bank for periods of not more than 3fii- years. The Government will, of course, have the right to take up one-third of the new issue of capital, and the ordinary shareholders the other two-thirds.

The dividend on the new capital will he fixed at 7.1 pair cent, per annum. The rate of interest to he charged by the Bank on the “Long Term” loans will l>e G per cent., and is not to be varied except under authority of an Order-in-Counci!.

Charging this rate of interest, it is evident we shall not nett a return of G per cent, front the operations of the Long Term Loan Department, as working expenses, lnssess and income tax have to he provided for; but we shall ask Government, in consideration of our fixing the lending rate on these Long Term Loans at 6 per cent., that the income from tins Department shall be assessed for taxation on a basis appropriate to the circumstances of the ease. We may reasonably hope to secure fob the ordinary business of our Bank some collateral advantages from these -Long Term Loans; but, whether we do so or not, the profit-earning power of

the Bank as a whole will he su flic lent, to pay dividends on the existing capital at present rates, as well .as 7.J per cent oil 1 lie new capital. Yi'hile this new departure is intended primarily for the benefit of the pastoral and agricultural sections, it is also intended to serve other classes of the community.

.So far as short term credit, and what is known as intermediate credit are concerned, we believe that ode* rptato provision already exists in the activities of the Banks, the various Farmers’ Co-operative Societies and other lending organisations. While the present opportunity is taken to acquaint shareholders with what we have in view, they must bear in mind tli.at ibis matter has not yet been submitted to Parliament. Rower will be taken in the Bill to enable the Minister of Finance to increase by Order-in-Council the capital of the Loan Department and debenture issues in the same proportion as already outlined if and when circumstances warrant. Power will also be taken to enable the Bank to pay otf at par the whole or any part of this special new capital should the scheme not be as successful as we hope and expect it to bo. Tu entering into this new activity, we believe and trust tluifc wo are serving the very herd interest's of (lie eonriI ry. In regard to the rate of interest we propose to charge on these loans, 1 may point out that the Rural Bank Repaid incut of the Government Savings Bank of New South Wales charges (R, per' cent on Long Term, Loans and it is not the subject to any taxation whatever.

THE OUTLOOK. Although many of our primary pro ducers have had a.n unprofitable year, mainly owing to adverse weather conditions, present prices for produce, as a whole, are remunerative to farmers who hold their land at its productive value, ft is quite a mistake to suppose that many farmers in New Zealand are in difficulties—the percentage is by no means large. Unfortunately, however, many of those who are in difneußics are returned soldiers who certainly deserve a hotter fate. Experience has shown that in s me districts laud has been brought into use Llial should have been left in ils virgin state, for its actual value is kss than (lie cost of the improvements effected. The Minister of Lands is dealing wilh the-position in regard to land leased from Government,' in a manner on truly praiseworthy. A successful farmer irmsell, bis views, which he makes known with refreshing freedom must carry weight with farmers. During the past‘year there has not been much demand for farm land and litit many would-be buyers are able to pay a. reasonable proportion of purchase money in cash. Except in a few districts, it looks as if the country were in for a bard winter. To aggravate matters, the general strike in Great Britain will doubtless result in a reduction of her purchasing power, which must to some extent affect the prices of the season’s produce.

Thor? is, unfortunately, in the Dominion rather u tendency to take a gloomy view oj the situation whenever a set-back is experienced, and also a tendency to become extravagant when times are good. Ups and downs are inevitable—it is the average that has to be reckoned with. To gauge truly the conditions of any country, one must take a long period of time into consideration. In the case of our own country, looking back over the years, one cannot hut lie deeply imjpressed with the steady march of progress and prosperity. Although for the moment that march has somewhat slackened, there is not the sligbest doubt that in the comparatively not distant future it will he renewed and quickened with fresh life

and vigour. Let mo close this survey with a reminder, although it may he a repetition of what I have previously said, that as we in New Zealand depend on the Mother Country for so much of our material prosperity, it is our boundon duty, not only as loyal citizens of the Empire, hut in absolute self-interest, to assist to our utmost

Ibo trade of Great Britain by pur-

chasing British goods; In -so doing each individual may help, but it ever so little, to unite and strengthen the commercial bonds of Empire. Mr Watson seconded the motion for the adoption of the Report and Balance Sheet, congratulated on the position of the Bank, which had been fully dealt with hv the Chairman.

Your elected representatives . on the Board of Directors, Mr Gibbs and myself, have gone carefully into the question, explained bv the Chairman, of making a special issue of shares and debentures to enable the Bank to undertake the business of long-dated loans, on tile amortisation principle, and we are of opinion that such a now departure, carefully conducted, will he in the distinct interest of ttye shareholders of the Bank and of the people of the Dominion generally. The excellence of the Bank’s staff of officers in their various spheres warrants confidence as to the continued progression of the institution. The strength of a Bank is to the benefit of its depositors in providing undoubted security for their deposits; to borrowers in affording corifidenco against pressure so long as thev fulfil their obligations;, and ..to

buyers of exchange in giving safety in the conduct of their business.

To j ;int. stock enterprise must he conceded an important part of ihe prosperity of this country, and it may not be too much to say that the Bank of New Zealand has been foremost in that particular. It’s funds have been employed in the development of land and trade and in assistance to public bodies, and there are many companies and individuals to-day in good positions which they owe to ils backing. With increased .strength its functions will undoubtedly expand to the further benefit of the the community.

] have been associated with the Bank since 1891. when the Head Office was transferred to Wellington. My present period of office will expire on 31st March, 1927, and T am emboldened to seek another renewal of the confidence which you have so long placed in me, and to stand for re-election as a Director in'December next .