14 JANUARY 1938, Page 32

BANK PROFITS EXPAND

As I suspected, the banks have had a satisfactory year. " Gross up " the published profits of the " Big Five " by adding back the provisions for income tax and N.D.C., and it seems that the aggregate increase in 1937 was roughly £1,300,000, or over ro per cent. Even this estimate is probably conservative, since I should expect, in the light of the uncertainties of the business position, that the banks will have placed more to hidden reserves than usual. The true increase in earnings may therefore have been at least 121 per cent. In a year in which money rates have remained con- sistently low, this is an excellent achievement, and holders of bank shares will not grumble at the dividends declared. The rise in bank profits, one need not doubt, has been due very largely to the expansion in advances, supplemented by the happier experience of bad debts which inevitably accompanies an improvement in trade.

On an average basis advances ran about to per cent. higher last year than in 1936, and, as the banks were in a position to finance this increased demand for accommoda- tion at the expense of the least remunerative of their assets, the effect on earnings was correspondingly marked. The average level of investment holdings last year—the next most remunerative outlet for funds after advances—was about 2 per cent. higher than in 1936, but the banks' portfolios of bills and their holdings of call money, on which the return is relatively small, were reduced. How much further the expansion of advances may be expected to go is not an easy problem to decide, as so much depends on the state of the new issue market. The virtual closing of this market since last summer has doubtless accelerated the industrial demand for bankers' loans. At the same time, it is at least arguable that a large-scale resumption of new industrial capital issues could only result from such a marked improve- ment in the general business situation as would be bound to recompense the banks for any fall in advances due to this cause.