Finance—Public & Private

Decline in I3anking Profits

I FIND it rather difficult to know whether I should offer the greater measure of congratulations to those bank I directors who have maintained their dividends at the previous year's level, or to those who have decided to make a moderate reduction. Possibly shareholders in the various institutions will +consider that they have no doubt as to the direction in which the congratulations should be offered. It must be borne in mind, however, that while in all cases the directors could perhaps have main- tained dividends, there was a general fall m profits.

Ilkactays.

Now that the " Big Five " have all announced their dividends it is possible to make some comment with regard to each of them. As usual, Barclays led the way -with the announcement that their dividend of 14 per cent. per annum on the " B " • and " C" shares was again maintained, and in passing it must be noted that Barclays is now the only bank which has not reduced its dividend as a result of the past few years of extreme depression,. Nevertheless, the net profit for the year showed a decrease of 1220,000, whereas in the previous year the fall was only 127,000. Moreover, there is no allocation to Con- tingency Account, whereas £200,000 was allotted last year. On the other hand, the announcement makes it clear that net profits are declared after making full provision for bad and doubtful debts.

THE MIDLAND.

The Midland Bank has also maintained its dividend of 16 per cent., being at the same rate as in the previous year, though in 1981 the dividend was reduced from 18 to the present level of 16 per cent. To the Midland Bank falls the credit of showing the smallest actual decline in the net profit, the total for the year of £2,019,000 comparing with £2,057,000 in the previous year. In the ease of the Midland Bank, too, the profits have been arrived at after making an appropriation towards bad and doubtful debts, all of which, it is stated, have been fully provided for. The Bank is able to place £800,000 to Contingencies, while the balance forward of £859,000 shows a small increase. It should be remembered that the Midland Bank's divi- dend for 1931 was actually about 161 per cent., inasmuch as the interim dividend was paid under deduction of Income Tax at the rate of 4s. 6d. in the £, and the final dividend at 5s. in the £, the Bank bearing the additional tax of 6d. on the interim dividend, retrospectively imposed by the Finance (No. 2) Act of 1981.

LLOYDS.

The first bank to announce a reduction in its ffividend for the past year was Lloyds and in this case the dividend is 12 per cent. against 13} per cent. in 1931 and 15 per cent. in 1930. In the case of Lloyds there was a drOp in ; the profit from £1,927,000 to £1,551,000, and the total amount available for distribution was £366,000 less than in the previous year. A further £200,000 has been trans- ferred to Contingencies Account. while the directors have also decided to restore the sum of £500,000 to the Reserve. It may be remembered that last year no less than 12,500,060 was taken from the balance-sheet Reserves and applied to writing down the whole of the Bank's invest- ments to market value or under as at the date of the

balance-sheet. ' NATIONAL PROVINCIAL.

The .National Provincial Bank shows a much smaller reduction in the net profits than Lloyds, but there was a fall of about £154,000, though owing to a larger amount brought - in, the total available for distribution shows 'a reduction over the previous year of only £23,000, a fact -which 'is due to the prudent'Poliey last year of providing a large " carry forward." here again the net profit is reached after making provision for all bad and doubtful debts, and the directors reduced the divi- dend by 1 per cent. to 15 per cent., which compares with 18-per cent. in 1930. A sum of £100,000 is placed to Bank Premises Account., whereas no ,such allocation was made it year. ago, and _there is the usual - allocation of £100,000 to the Officers' Pension Fund.

WESTMINSTER BANS.

The WestminSter Bank profits show the very Moderate reduition of just over £100,000, and in this -ease also the -dividend is maintained at the same level as in the previous year—namely, 18 per cent. There is no allocation to Contingent Fund, for the very good reason, of +course, that such allocation is not required, so far, at all events, as provision for depreciation in securities-is concerned, while it is again stated that the profits have been reached " after providing -for rebate-and -Income Tax and after appropriations to the credit of Contingency Accounts, out of which accounts fell provision for bad and doubtful debts has been made." There is, moreover, an allocation of £100,000 to Bank Premises Account which 'was not made last year and the carry forward is increased,by about £30,000. It is also of interest to note, as indicating the prudent policy of the Bank, that the profits exceed the amount paid in dividend by a margin of well over £800,000.

AN UNFOUNDED CHARGE.

From these announcements it will be seen that there has been one feature common to the experience of all the banks during the past year--namely, a reduction in the net profit. Indeed, taking the aggregate results of the five big banks the decline is 'nearly £900,000. This point may be commended to the attention Of those who have so persistently waged a campaign against the banks of alleged profiteering just because it happens that during the past six months the nominal rate of interest allowed on deposits has been } per cent, as compared with a nominal charge of 5 per cent on advanceS. As, however, I have repeatedly explained in these columns, it has been no ease of profiteering by the banks, which have been very severely hit by the great fall in money rates.

Be the conditions what they may as regards financial activity or financial depression, the banks are compelled by their duty to depositors to Maintain a proportion of Something like 10 per cent. in actual cash and the greater part of the balance in short term securities so as to keep the position thoroughly liquid. During the past year, however, the difficulties of the banks have been two- fold. In the first place, no matter what the eharge for advances, the difficulty has been to discover legitimate borrowers, while in employing their deposits in the Discount Market or in the short loan market, rates of less than 1 per cent. have frequently had to be accepted. It is probable, indeed, that but for the rise in securities and the -realization of some of these securities by the banks, the reduction in net, profit would have been even greater than is diselosed in the figures how published.

THE DIVIDEND POLICY.

I am very far -from suggesting that those banks which have maintained their -dividends at the previous year's level have done so at any material risk to future dividends, while one and all continue to show. the necessary liquidity of the balance-sheet .Nevertheless, and because each bank could,-if ithatleleSired, havemaintained thediVidend at the same leVel as lfist'year, 1 should like tircongiUtulate

those IVIIO Tice& SHIRR 'redileiion in the diVidend as a recognition, probabb,, not merely of conditions during the .pasi year,,bn.t,of,uneertamties with regard to the. fatiare:- -.The heaviest shrinkage 10- net profits was shown by Lloyds Bank,butit is, only lair to point -out that while all the bankSlait able to state that full provision has been „made frreall bad' and dunbtful debts, :Lloyds aniunince :veiy.'eXilliCitly; that provision haS been Made fer.allIzid and doubtful debts !` out of the