BANKING PROFITS

Hokitika Guardian, 11 October 1930, Page 2

BANKING PROFITS

. I • REPLY TO CRITICISM.

MODERATE RETURN TO SHAREHOLDERS. WELLINGTON, October 9. Considerable criticism has been made lately of banking profits, a.nd inquiry of one local bank, the National . Bank of New Zealand, Ltd., whose business is confined solely to New Zealand, elic« ited the information from the general manager (Mr J. T, Grose) to the effect that the dividend of 12 per cent, distributed in July last was on the paidup capital £2,000,000, but for the year to March 31, 1980, shareholders’ funds employed in the business were:— Paid-up capital £2,000,000, reserve fund £2,000,000, balance of profit and loss account carried forward £155,000, in all £4,155,000. On the total amount the earned profit of £282,917 represented 6.8 per cent, On these shareholders’ funds of £4,155,000, however, the 12 per cent, dividend paid was equal to only 5,77 per cent, The reserve fund of £2,000,000 consists, to the extent of £1,887,500, of funds actually contributed by (shareholders by way of premiums on new issues, and the balance is from undistributed profits. From 1885 to 1897 the dividend distributed by the bank did not exceed 5 per cent, on the pnid-up capital, Between 1900 and 1926—both years inclusive—the bank made seven new capital issues, all at a premium, which premiums made up the £1,387,500 (or 69 per cent) of the published reserve fund of £2,000,000, For the last thirty years the dividend distributed to shareholders has not exceeded 7 per cent on their own funds in the business.

It is held by the bank that this is but a moderate return on such an investment. For more than twenty years shareholders received not more than a 5 per cent, dividend, and the return they are now receiving, that is, interest at a rate, a little less than 6 per cent, per annum, is not considered to be excessive. This reserve fund, which is invested in Government securiteis, is used in the business of the bank; and with the carry-forward and internal reserves constitutes a most substantial security to depositors, as is right. The shareholders are large in number, but the average holding of shares is small, as is common to all the banks.