BANK OF NEW ZEALAND

Otago Witness, Issue 4032, 23 June 1931, Page 22

BANK OF NEW ZEALAND

ANNUAL MEETING. ADDRESS BY THE CHAIRMAN. The annual meeting of proprietors of the Bank of New Zealand wag held in Wellington on Friday. The chairman (Mr William Watson) apologised for the • absence of Sir George Elliot, who had left for a visit to Great Britain on March 26. In moving the adoption of the annuol report and balance sheet, Mr Watson said: — There has not been any change during the year in the capital of the bank. It is proposed to transfer £25,000 from the year’s profits to the r< serve fund, making the latter £3,575,000. This is the smallest addition to the fund for very many years. The balance of profit carried forward will be increased by £2845. Shareholders’ funds will thus amount to: — Paid-up capital (exclusive of £529,988 of guaranteed stock £6.328.125 Reserve Fund 3.575,000 Balance of profit carried forward 626,001 £10,529,126 In addition to those funds, we have ample internal reserves built up over a long period of years. It will be thus apparent that the bank is in a very strong position. LONG-TERM MORTGAGE DEPARTMENT. In November last we placed in London, on satisfactory terms, an issue of £500.000 5 per cent, long-term mortgage debenture stock maturing on November 15. 1940. The proceeds of the issue were used to repay advances which had been obtained from the banking department of the bank. But few loans were made during the year, only a limited amount of funds being ' available. NOTES IN CIRCULATION. Our notes in circulation at March 31 amounted to £3,679,957. The average circulation for the year was £3,526,197. AU banks here issue their own notes secured by a holding of one-third in gold and twothirds in Government securities. Over and above this backing, the notes are a first charge on all the assets of the individual banks concerned. There can therefore be no question as to the safety of the notes, nor can there be inflation or deflation, as the notes in circulation are simply those required by the public for their actual needs. This is shown by the steadiness of the average circulation of all the banks for the past five years, as follows:— 1926- £6,673,595 1927- 6,453,265 1928- 6,372,599 1929- 6,445,446 1930- 6,102,022 The direct note tax was raised as from July 1 last from £3 per cent, to £4 10s per c f nt - 1“ addition to this direct tax, the banks pay income tax, at present 15s per cent, on the amount of notes in circulation and on the gold and Govern ment securities backing the issue, making a total tax of £5 5s per cent. Cost of the note forms and all working expenses in connection with the circulation are borne by the banks, so that the whole £5 5s per cent, goes to the Government. Practically the whole of the profit cn the note issue when the tax was 3 per cent, went to the Government. Consequently the increase of 1£ per cent, was totally unjustifiable. The banks felt that this increased imposition should be met by some means, and therefore increased the half-yearly charge to customers for keeping accounts by ss. This increased charge still leaves this bank to face a loss of £lO,OOO to £12,000 a year, as about 30 per cent, of our circulation is due to the operations of the Government accounts, on which no charge is made. The relations of gold to currency have been in recent years subjects of many aii‘l various discussions, throughout which it may be noted that bankers and other experienced men have supported a backing of gold as security, whilst others have considered that the note issue of a country could be safely based on the security of the State without any tangible support. The proclamation constituting notes legal tender expires in January next. Doubt less, the Government will see the wisdom of extending the period for two or three years to permit of a return to normal conditions. DEPOSITS. Our deposits at the balance date were £1,572.923 less than at March 31, 1930, The shrinkage is in current account balances. which are down by £2.623.492. Fixed deposits have increased £1,593.072. Gov ernment balances are less by £542,503. PROFIT AND LOSS ACCOUNT. The profit for the year was £845,811. being £102,720 less than for the previous period, the decrease being due to in creased taxation, to higher cost of deposits, increase in bad debts, and to less ened earnings on our short-term investments in London. We anticipate that our losses from the earthquake and resultant fires in Hawke’s Bay last February will amount to less than £lOO.OOO. When these losses have been definitely determined, the amount will be debited to the Con tingency Fund, in which there will remain a very substantial balance. The coin, cash balances, and deposits with bankers, totalling £7,106.498, shows an increase of £342.897 on last year's figures, and the money at cal] and shot t notice, Government securities, and other securities in London, bills receivable in London and in transit, a reduction of £823.361, due to lower values for the Dominion’s produce. INVESTMENTS. The British and New Zealand Government securities and securities of local bodies total £8.681,893. These items are well under realisable value. The Australian Government securities total £3,548,443. and these also stand in our books at less than market value. ADVANCES AND BILLS DIS- ' COUNTED.

These items together show a decrease of £709,374, over £400,000 of which is due to reduced imports from Britain. There has been an active demand for money, and we have been able to meet all legitimate applications from our own cus-

tomers. In the depressed conditions prevailing, we have felt it to be our duty to meet our customers’ needs right up to the limit of safety. BANKING SYSTEM IN NEW ZEALAND. The banking system of New Zealand has been evolved during more than 90 years of practical acquaintance with the country’s requirements. It differs from the British system inasmuch as it has to deal largely with aiding development of land, as well as assisting in the establishment and encouragement of all other industries essential to the needs of a young country and its growing population. It will be admitted that had the banks conducted their operations strictly in accordance with the lines of British banking, the Dominion would not have made anything like the progress it has. and therefore it may be justly claimed that the system has met the needs of the country, and has enabled the banks to assist their customers in weathering many a storm with minima of ill effects. DIVIDEND. The dividend and bonus will be at the same rates as those of last year. No change, by reason of present abnormal exchange rates, is being made in the customary method of paying the dividend an 1 bonus, that is to say, they will be paid in the currency of the country in which the shares are registered. TAXATION. Taxation paid to the Government of New Zealand in the year under review was £54.109 more than in the year previous. The total increase in rates and taxes on the whole of the bank's business was £86,837. Income tax was increased last year by 10 per eent., involving the bank in an additional impost of £17.865. Banks in New Zealand are taxed not on what they actually earn iu the Dominion, but on what, under an arbitrary and now unfair system, they are assumed to have earned; the result being that, as compared with what we would have to pay if taxed as a joint stock company, we were mulcted last year to the extent of no less than an additional £58.841. WHAT THE STATE DERIVES FROM THE BANK. During the year, £594,263 was paid by the bank to the Government of New Zealand by way of dividends and taxation, viz.:— Dividends £245,312 Income Tax 196.524 Land Tax 18.863 Note Tax 133,564 £594,263 RATES OF INTEREST. There has been no change in interest rates within the Dominion. Although the demand for money exceeds the supply, we hope that ere long it may be possible to bring about a reduction of rates, but, as the banks do not control interest rates, nothing can be accomplished in the way of reduction unless certain other important interests can be induced to cooperate.

The Bank of England rate was reduced from 3 per cent, to 21 per cent, on May 14. It is to be hoped that the lower rate will tend to stimulate enterprise in the Old Country, though it is feared that the accumulation, of funds in London denotes want of confidence in the industrial outlook. The Bank of England rate has little or no effect on rates here. EXCHANGE. The present rates of exchange between London and New Zealand and vice versa are abnormally high, and there is no reduction in close sight. The principal factor in advancing rates from time to time has been the necessity for bringing about a reduction in imports .to correspond in some measure with the reduced value of exports. To a considerable extent this result has been attained, but London reserves, which have been heavily depleted, must be built up before reduction of rates can be looked for. Further, ’t is by no means certain that for the present year the balance of trade will be in the Dominion’s favour to anything like an adequate amount. We have resolutely refused to permit our New Zealand funds in London to be availed of for the benefit of Australia, but. unfortunately, the. banks do not control the exchange position. Consequently, through channels outside the banks, Australians have secured possession of an appreciable amount of New Zealand funds in London. GENERAL ECONOMIC CONDITIONS.

Despite increased production, the shrinkage of many millions in the total value of exports denotes how seriously this country has been affected by the nresent world-wide depression. Almost ‘'very class of the community has suffered, sheep farmers most of all. Traders have been working on an inadequate margin of profit or have made no profit at all; indeed, in many cases severe lo.'ses have been suffered. People who are dependent on dividends from joint stock companies have had their incomes greatly reduced. Unemployment is serious, and will continue until labour can be profitably employed. That there will be a return to the prices of a few years ago is most unlikely. Values of our assets must be based on the competitive value of our products in the markets of the world, and standards of living adjusted accordingly. A great many persons who have enjoyed substantial incomes now find themselves without any income and forced to trench on capital built up in most eases by years of industry and self-denial. If they have not the necessary means they must, regrettable as it may be, reduce their standard of living: in short, the coat must be cut according to the cloth. If the standard of living can be improved in countries which compete with this country in the markets of the world, then the standard in the Dominion can be correspondingly improved. By the time the country settles down to a sound basis very many millions will have been written off existing values. The recent "cut” of, 10 per cent, in salaries and wages will, in many instances, inflict more or less hardship, but I would emphasise that a great many persons have been ob l iged to face losses far in excess of 10 ner cent.

MORATORIUM.

Continuance of the morartorium of 1914 for years beyond the period for

which there was justification brought mortgages over landed properties into strong disfavour, the result being that borrowers on mortgage of land find that funds for such investments are more or less limited to those in the hands of the various Government lending departments, lhere are, no doubt, cases where mortgagees have attempted to deal harshly with inortgagorg, but we have no hesitation in saying that in the vast majority the last thing a mortgagee wants is default to be made. In recent years, large sums have been written off amounts of mortgage debts, extension of time granted, and interest rates reduced. A mortgagor who “ plays the game ” has little- to fear from his mortgagee, but it is regrettable to have to say that a great many mortgagors do not " play the game.” Last session of Parliament, another moratorium on mortgages was enacted, which we fear will do more harm than good, inasmuch as it will tend to make lenders shyer than ever of mortgages, and, in future, to force a greater volume of business than ever into the hands of Government departments. The motion for the adoption of the report was seconded by Sir Harold Beauchamp, who congratulated Mr Watson upon his appointment as chairman of the bank. lie had been associated with the bank as a director since 1894, and his elevation to the chair placed a coping stone to the long and honourable career he had had as a banker. In fact, he might now be described as the doyen of the bankers of Australasia. The motion was carried unanimously.

Air R. W. Gibbs returned thanks foa further extension of office as a representative on the board. A STRENUOUS TIME.

Mr A. E. Mabin said the world was going through a very strenuous time. Everything seemed to have gone awry, ami the highest economists in the world had not been able to find the cause thereof, but all were looking for the silver lining or a streak of light which wouid come to a rather harassed world. The laws of economics worked very slowly but surely, and everyone would emerge far wiser but possibly poorer men. li. times such as the present it was far more uewjjsary and right that the shareholders shomd pass a vote of thanks'to the stat, for their services. Paying a tribute •• ■> Mr Watson Mr Mabin said his long years and experience in banking finance, and also his close association with the affair, of the Dominion in the past when crises had cccurred. would be of very great sc. vice to the bank at the present time and he would have a very valuable cadjutor in Sir Henry Buckleton. The chairman and Sir Henry Buckle ton replied, and the meeting concluded.