FINANCE

Taranaki Daily News, 17 June 1922, Page 7

FINANCE

REVIEW OF PAST YEAR. BANK OF NEW ZEALAND’S WORK. ADDRESS BY THE CHAIRMAN. THE STATE BANK IDEA By Telegraph.—Press Association. Wellington, June 16. The annual meeting of shareholders }f tie Bank of New Zealand was held to-day. Mr. George Elliott (chairman of directors) presiding. In moving tlie adoption of the report and balance sheet, Mr. Elliott said: — The result of the year’s operations has been quite satisfactory, notwithstanding a falling off of £145,213 as compared with the previous year’s profits. The decrease is largely the result of our overhead charges being greater by £110,452, of which £92,745 is in the item rates and taxes. It was explained at the last annual meeting that the exceptional profits then declared were mainly due to the benefit of unusual exchange rates and to the handsome returns received from our large investments in London. Exchange profits in the earlier part of the year were unusually high, but have since fallen off considerably, and a further reduction is to be looked for. For these reasons, and also because financial conditions in the Dominion are not entirely satisfactory, an addition of £69,543 has been made to the carry forward, which now amounts to £430,818. ADVANCES AND DEPOSITS. As compared with the figures at March 31, 1921, our advances, including discounts, show a reduction of £5,723,068, but this reduction has not relieved the pressure upon our resources, for it is more than offset by a contraction of £5,799,052 in our deposits in the same period. It may interest you to learn that between June, 1920 (when our deposits in the Dominion reached highwater mark), and January last, there was a drop in the deposits of no less than 13 millions; at the same time advances increased by 5| millions; the total drawing on our resources being 18| millions. These figures speak volumes for the strength of the bank and the liquid nature of our reserves. At our last meeting, my predecessor referred to the financial stringency which the Dominion was experiencing, its causes, and its effects upon the position of the business community; its effect also upon the position of the farming community, which latter forms so important a portion of the consistency of this bank. Little change has taken place since then- Financial stringency still exists, consequently the attention of the directors and of the officers of the bank have been fully taken up with problems arising from conditions such as we have noc experienced for many years. Advances to the trading community are much less than they were at the beginning of the year; liquidation of the excessive stocks of imported goods, that created so much difficulty from September, 1920, onwards, has been vigorously carried out, often at great sacrifice. The large measure of support which we accorded to importers has therefore been fully justified, and our losses in this class of business have been of little consequence. The low prices ruling for several of the most important products of the country, obliged primary producers, and those connected with them, to lean heavily upon us. It is hoped, however, that when next season’s produce becomes available, these advances will be materially reduced. We have felt it to be our duty to give the fullest measure of support to the primary indstries of the Dominion, even at the risk of loss in some cases.

LOCAL BODIES’ BORROWINGS. Prior to 1918, local bodies were able to raise money locally on loan issues with comparative ease, but the stringency which arose nearly two years ago made it difficult, if not impossible, fdr them to float loans on the local market at such rates of interest as the Government would sanction. In many cases the necessity for meeting commitments which have been made in the expectation that loan money would be available had to be faced by recourse to the banks, thus adding to the pressure on us.

This pressure is now easing, as several local bodies recently have made successful local issues of loans at a 6 per cent, rate. The money could have been obtained in London at a slightly higher cost, and, in the interests of the Dominion as a whole, it is to be regretted that the loans were not raised there- Until financial conditions have become more normal, it is important that local resources should remain available for the further development of local industries, and that, when they can do so at reasonable cost, local bodies should borrow in London. Prior to the recent improvement in the London money market, a number of our local bodies raised money in Australia on 10-year bonds at 7 per cent, per annum. All the banks doing business in the Dominion have found, during the latter half of the year, that withdrawals of deposits have been greater than the reductions in advances; consequently the latest published averages—March. 1922—show the following figures:—Deposits, £40,360,389; advances. £46,491.314; excess of advances, £6,130.925. This is an abnormal and undesirable state of things.

MORATORIUM LEGISLATION. Last session, Parliament extended the time for full repayment of deposits held by joint stock companies, firms, and municipal corporations until December 31, 1922, for sums up to £lOOO, and until June 30, 1923, for larger amounts. The borrowers concerned are taking steps to meet the deposit liability by the issue of debentures, by the conversion of deposits into share capital, by the collection of uncalled capital, or by cash payments. The loss depositors will be called upon to face will, on the whole, we believe, be small. It is to be hoped that the experience the people generally have had of the danger of placing money on deposit with concerns that keep no cash or liquid reserves, will prove salutary. There has been some controversy as to the wisdom or otherwise of the Government passing such legislation, but it is our opinion that, had the Moratorium Act not been passed, many solvent companies and firms would have been obliged to suspend payment, end a severe financial crisis might have resulted. Parliament has made provision for extension of the moratorium on mortgages Until December 31, 1924. It is hoped that mortgagors will sec the wisdom of arranging well before that date

for the payment or renewal of their mortgages, and avoid the difficulties which must otherwise arise from the fact of so many engagements becoming due on the same date. The various extensions of the moratorium have brought mortgage investments into disfavor, and higher rates of interest and larger margins of value than were required in the past will undoubtedly be looked for in future.

LAND VALUES. Instances have come under our notice of farmers, who paid unreasonably high prices for land, having been obliged to forfeit the portion of the purchase money (often running into thousands of pounds) which they have paid, and to hand back the property to the vendors. Other vendors have written off large sums due to them to induce the purchasers to remain on the land, and further losses, we fear, will have to be faced before bedrock is touched. None of these losses, however, need occasion alarm as to the stability of the country, because the proportion of failures will be small. The productive opacity of the country will, on the whole, not be reduced. Although in some cases properties have deteriorated, in others the carrying capacity of the land and the quality of the stock have been improved. In the long run, the Dominion will be in a better position for having been purged of unwholesome conditions.

Dependent as we are on the export of our primary products, valnes must be based on what land can produce in competition with other countries in the markets of the world. Our geographical position, the high rate of wages, and the high price of land are material disadvantages under which we labor. Then, again, land in many instances is held in larger holdings than permits of it being utilised to the fullest advantage. By judicious subdivision the number of settlers could !be largely increased with little or no further expenditure on roads and railways. The low rate of interest which ruled in the Dominion, and the readiness with which vendors accepted small deposits on account of purchase money on farm property, were important factors in abnormally raising land values. The South Island has not suffered to anything like the same extent as the North, as land values there were not inflated to the same degree.

IMPORTS AND EXPORTS. A change in the relation between our imports and exports has taken place within the year. Twelve months ago we were feeling the effects of overimportation at a time when the fall in prices was reducing the value of our exports, but during the last six months of 1921 and the part of 1922 which ha§ elapsed, our imports have been on a much more moderate scale. The figures for the twelve months of our financial year show a decrease of £31,340,013 upon those of the previous year, the amounts being: 1920/21, £67,463,269; 1921/22, £36,123,256. The figures for 1913/14 were £22,311,839.

Our exports—though most of the produce coming under this heading has gone down in price since the previous year—show a comparatively small reduction in value. A gratifying nfereaac in the quantity of some of our exports —especially butter and cheese —has produced this result. The exports for the year are valued at £43,802,326, aK against a total of £48,199,329 for the previous year, a decrease of £4,397,003, which may be regarded as satisfactoi when we bear in mind the low price•which have been current for our principal products during the period referred to- Exports for the year ended March 31, 1914, were valued at £23,471,131.

A STATE BANK. The establishment of a State Bank in the Dominion is being advocated in certain quarters, but as the position has not been fairly and'fully put to the public, it is desirable that I should say something on the subject. Thee is only one State Bank in Australasia, and it is contended that the success which has been attained by that institution, founded nine years ago, warrants the foundation of a similar institution in Npw Zealand. The conditions in the two countries are. however, entirely different. One-third of the capital of the Bank of New Zealand is owned by the State, and the Government appoints a majority of the board of directors. The State Bank referred to, which serves a population of more than four times that of New Zealand, has not, during the nine years of its existence, made any contribution to the public revenue whatever, either in the shape of dividends or taxation. True, it has amassed a surplus of £3,792.726. which remains in the business, and is practically its working capital. The Bank of New Zealand, on the contrary.

during the last nine years, has, exclusive of £375,000 bonus shares issued to the Government, contributed to the revenues of this country no less a sum than £2,171,450. In addition, £85,463 has been paid to local (bodies for rates. The rate of interest charged to the public on overdraft by the State Bank is 6 per cent., whilst 7 per cent, is charged by banks in New Zealand. If our Government were to place the banks in this Dominion on the same basis as that of the State Bank, as far as rates and taxes are concerned, the rate for advances here could ibe at once reduced. In the Post Office Savings Bank and the Advances to Settlers Department, the country already has two organisations that, as a combination, to all intents and purposes, meet the objects for which alone a State Bank might be justified. But do taxpayers realise what is lost to the State in income tax alone, through the business done by those organisations having been diverted from the ordinary banks ? Taking the figures of the two Government departments at March 31. 1921, the extra income tax for the year, which would' have been paid by the banks had the business been in their hands, would have amounted to nearly three-quarters of a million. That is one of the undisclosed losses to the State arising from State enterprises competing with private enterprises.

REASONS AGAINST. There is little doubt that the establishment of a State Bank here would militate against the growth of deposits in the Post Office Savings Bank, which for many years past have been increasing in a substantially greater ratio than the deposits with the ordinary banks. It may be doubted if in any British country the banks have to face such severe competition from post office savings banks as do the banks in this country. In Great Britain the Post Office Savings Bank holds deposits to the extent of about £6 per head of the population, whilst the figure in this Dominion is £3B. The actual amount of cash invested in our Bank by the Government is £875,000, and to this has been added bonus shares, as just mentioned, for £375,000, created by transfer from the reserve fund, thus giving the Government a capital interest in the bank of £1,250,000. The annual dividend paid to the Government on its capital in the bank is now £112,500. The interest payable by the Government on the loans issued to provide the capital rt has invested in the Bank amounts to £32,500, leaving a net annual profit to the Government of £BO,OOO- On a 5 per cent, basis, this means that the goodwill of the Government’s interest in the Bank as a going concern is £1,600,000. The last balance sheet of the State Bank referred to shows that in its ordinary banking department it held £26.000,000 of deposits, whilst its advances to its customers amounted to £14.000.000. The deposits of our own bank in New Zealand alone, exclusive of those of the Government, at March 31, stood at £19.500,000, whilst our advances in the Dominion amounted to £21,700,000.

DOMINION’S CREDIT GOOD. In seconding the adoption of the balance sheet and report, Mr. Kane, a director who has recently visited England, .paid a great tribute to the work of the London directorate, and particularly to that of the chairman, Mr. Lubbock. “In conclusion,” he said, “let me say how pleased I was to observe how high the credit of this country stands in the world's financial centre. No better evidence of this standing could be desired than the recent flotation in London of a New Zealand Loan on terms, I believe, better than any obtained by a colonial Government since 1913.”

STATE BANK NOT POLICY. Replying to questions, the chairman said he believed the rates of overdraft in the Argentine were from 7 to 9 per cent, on business similar to that in New Zealand. He could give no idea when the further capital would be issued. Mr. John Mill, proposing a vote of thanks to the directors, general manager flrnd staff’, referred to the State Bank, quoting Mr. Massey, and pointing out that it was not in the interests of the Government to institute a State bank. The Bank of New Zealand pays annually £600,000 to the Government’s revenue, and the bank also employs over 1300 persons with salaries amounting to £400,000 per annum, and provides a large sum for pensions -for old age. The bank could not be taken from the rhareholders without an adequate price having to be paid for the concern. The meeting concluded with an acknowledgement by the chairman and general manager of the vote of thanks.