BANK OF NEW ZEALAND.

Taranaki Daily News, 18 December 1922, Page 7

BANK OF NEW ZEALAND.

HALF-YEARLY MEETING. LESS EARNING POWER. By Telegraph.—Press Assn,—Copyright. Wellington, Last Night. The half-yearly general meeting of the Bank of New Zealand was held to-day. The chairman (Mr. George Elliott) said: You may remember that at the last annual meeting it was indicated that the large profits earned by the bank during recent years were due to a combination of unusual circumstances, principally in London, and that such large profits could not, in the ordinary’ course of business, be maintained. This has proved to be the case; circumstances have changed, and the change is reflected in the bank’s earning power. Nevertheless, we are in a position to pay an interim dividend of Is 4d per '’hare on the ordinary shares, which will absorb £150,000; a dividend for the year to March 31 next on the preference “A” shares held by the Government, • £50,000; and an interim dividend on the I preference “B” shares held by the Government, £25,000; making a total distribution of £225,000. Since it does not seem to be fully understood that the large profits earned by the bank during the last few years were, to a considerable extent, made outside New Zealand, it is advisable to draw attention once more to the fact, and also to the conditions which brought about those large profits. You may remember that our funds in London at the end of 1919 had mounted up to over twenty millions, and it was practically impossible to transfer any large portion of the surplus to New Zealand or to Australia. Fortunately for us, however, exceptionally high interest rates ruled in London, British Treasury Bills yielding as much as 64 per cent., whilst the Bank of England discount rate went to 7 per cent., so that our funds in London yielded unusually good returns. Our exceptional profits were due, therefore, to an abnormal set of circumstances. During the period referred to our borrowing customers in the Dominion were charged a lower rate of interest than we obtained in London on the most gilt-edged and liquid securities in the world. The present year has again witnessed a sudden change in the London interest and exchange rates, but this time the change is adverse to us. Our funds have once more mounted up in London much in excess of our requirements, but interest rates there are exceptionally low, Treasury Bills bringing in 2j per cent. less. CRITICISM ANSWERED. We feel called upon to reply to the unfair criticism to which the bank has been subjected during the recent Parliamentary campaign by many of the candidates, who advocated the establishment of a State Bank; at the same time, we recognise that the ramifications of finance are so extensive and far-reaching in their results as not to be easily understandable by those who have not the opportunity of acquainting themselves at first-hand with the real position of affairs. It would be well for the public to remember that the criticism of inexperience is necessarily of little value, and it should therefore be largely discounted. We do not resent fair criticism, but we do object to wilful misrepresentation through the suppression of known facts, which, if stated, would put an entirely different complexion on the position. For instance, it is well known that the banks in this Dominion are far more heavily taxed than are any other taxpayers in the country, or even in the Empire, It is simply wilful misrepresentation to compare the interest rate of the banks here with those ruling elsewhere, without taking into account the much more favorable conditions existing outside the Dominion—more especially in the case of the State Bank of a neighboring territory, which makes no contribution whatever to the Federal or State Government by way of income and land tax, and pays no rates to the local authorities. As a matter of literal truth, every person in Australia has to bear a greater proportion of taxation because the Commonwealth Bank pays no taxes whatever. It is true the Commonwealth Bank has, during the ten years of its existence, made large profits; it no doubt makes fewer losses than other competing banks, for it takes fewer risks.

LESS STATE IN BUSINESS. Many State industries have been tried in various parts of the globe, and have proved disastrous financial failures. There is, unfortunately, a growing inclination to look to the Government to start all kinds of enterprises and to regulate everything by statute. Paternalism in government has a malign influence on the minds and thoughts of the people; it warps the individual judgment, kills initiative, and destroys that sturdy independence and selfreliance which is necessary to build up a free and independent people. Laws which spring from this tendency of mind clog and obstruct; they lower the power of productivity in individuals, ami increase the cost of everything produced. They put sand in the bearings of the industrial and economic machine, and they increase the cost of living enormously. Carried to an extreme, they lead to conditions similar to those now ruling in Russia, where a great tragedy is being enacted; where a whole nation is in the throes of misery, crime, disease, starvation and death; and where, for a pittance, men and women are forced to work 12 hours a day at the point of the bayonet. It has indeed truly been said that the least-governed nation is the bestgoverned nation. You will remember that early in 1921, as the result of excessive, importation of goods, the Dominion was faced with a financial crisis, the severity of which could be estimated only by those responsible for the financing of this whole country’s business. There are two methods of meeting such, a crisis: one is to keep interest rates low and to lend sparingly; the other is to lend freely, even up to the limit of a bank’s resources, at the same time increasing interest rates so as to compel realisation of assets, and thus get back to a normal position as quickly as possible. We, in common with the other banks here, took the latter course, with the result that almost all the business houses in the Dominion have weathered the storm with a success that has reflected the greatest credit on the financial stability of the country. Had we kept interest rates down, lent sparingly, ahd placed money in first-class Government securities that would have yielded a high rate of interest for many years to come, the Bank would have benefited, but the country, would have experienced a farreaching collapse. DEPOSITS AND ADVANCES. It is satisfactory to be able to tall you that we are getting nearer to a normal proportion between the deposits and advances in the Dominion. The end of the half-year sees our current account credit balances standing at practically the same figure as that with which it began, while there is an appreciable increase in the amount of our fixed deposits. The greater portion of that increase, however, consists mainly of sums which have been left with us for a short period only. On the other side, our advances show a decrease of about two and a-half millions. As far as they go, the movements in these figures are in the right direction, but, until more has been done to restore a better relation between deposits and advances, the necessity for keeping a tight hand upon our lending business will be evident. EXCHANGE.

Two years ago the exchange position between London and Australia was extremely acute, but by June last normality was reached. Since then, however, the position has again become serious, but, in contrast to the 1920 difficulty of transferring funds from Australasia to London, the present problem is how to transfer surplus funds from London to Australia and New Zealand. Excess of exports over imports, the issue of loans in London by Australasian Governments and local bodies, and the realisation of a large portion of the wool held by the 8.A.W.R.A., has swollen to undue d:men- . sions the funds handled by the London offices of most of the banks. It is therefore extremely difficult to effect adjustment, in the manner customary between the banks, and sales of exchange on London can now be effected only at a very heavy discount. In the interests of the Dominion, it is to be hoped that our exports will continue to show a very substantial margin over imports. This, however, would add considerably to the difficulties of the banks in adjusting their balances, unless the surpluses which accumulate in London were used there to pay off existing or accruing liabilities. In pre-war days the difficulty could have been solved by the importation of gold coin from London. At present gold is at a premium of 10 per cent. This method is therefore out of the question. As far as New Zealand is concerned, it would seem that the position might be met if the Government could see its way t<; issue pert of its next loan in New Zealand instead of obtaining the whole amount in London. Such a course would, to some extent, absorb these surplus credits, which are now available in London, but which, as has been stated, are becoming increasingly difficult to transfer to New Zealand. Our trade with Australia is exceedingly one-sided, and constantly leaves a very large balance against the Dominion; moreover, the bulk of our imports from the South Sea Islands are paid for in AustraFa. A* a consequence, the selling rate of exchange on Australia has been doubled within the present year, and, at the moment, it looks as if it may be increased still further. BUSINESS CONDITIONS. Retail traders have done fairly well during the past six months, but many wholesale houses have not yet returned to a profit-earning stage, though better times are in s : ght. Farmers are still feeling the pinch, but for them, too, the outlook is improving. AU clashes of wool are now commanding increased prices, the market for lamb is exceedingly good, mutton is at a fair price, but beef, unfortunately, is still unremunf.raf’ve. Dairy produce is selling at figures as high as can be reasonably looked for. Indications point to a good season in the way of production, weather conditions over the greater portion of the Dominion having been favorable. The recent reductions in taxation, shipping charges and interest, afford seme measure of relief to all classes of the community. The financial difficulties of individual farmers are reflected in the affairs of many of their co-operative companies, which have not only become involved in heavy losses, but have also locked up large sums in advances that, for some time to come cannot be liquidated without further losses being incurred. In the interests of these companies. Parliament last session passed legislation empowering a majority of creditors to stop any minority attempting to force an embarrassed company into liquidation, the aim of such legislation being to minimise the losses that the companies must inevitably sustain. While legislation of this nature may, under stress of exceptional circumstances, be warranted, one must not forget that it involves a risk of damaging the credit of the Dominion. Interference by statute with the normal conduct of business is highly dangerous, and should as far as possible be avoided. RESULTS OF WILD SPECULATION. | During the last ten years there has be n n much wild speculation in land, and even

conservative men have been led into buying far greater areas than their means warranted. Many who bought early were able to realise at a profit, but these frequently used their original capital—plus profit—to buy more land. Prices of products soared, and land values followed suit, the best land going to unheard-of prices. In 1920-21 the value of primary produce slumped, and the value of land fell with it. Many of our farmers are, at the present moment, financially embarrassed because they hold more land than they can profitably work. No doubt they bought those large areas in the hope of selling at a profit, and they hesitate to make the sacrifice which the sale of the whole or part of their land involves. The only remedy for them is to cut their losses by selling a portion of their land, even at. a drastic reduction on its cost, keeping only as much as they can manage properly, and finance comfortably. I may say that practically all the losses sustained by the Bank during the last two years have been made on advances to farmers and farmers’ organisations. Little has been lost on the advances to commercial houses and traders. I hope that share holders will not misunderstand this statement: a loss was expected, and, as intimated at the annual meeting, the board had determined to assist the primary producers and to assist them even at some risk of loss. It was felt that as the bank, which is so entirely bound up in the welfare of New Zealand, was making good profits, some of these profits might be risked in helping struggling settlers through a time of dire need. Some to whom we gave assistance have gone down in the storm, but the great majority will weather it, and ultimately sail into calm waters. The war period was an anxious time for bankers, but it was as nothing compared with the aftermath. We have indeed come through stormy weather, but now the clouds are breaking, and we may with confidence look forward to better prospects in the future,