The Banking Year Deposits and Loans Lower IN normal times
the figures .-of bankers:1‘balanceshects give a fairly clear indication not only of the position of the banks but of some of the outstanding features of the general economic situation in the country. Active trade • is usually accompanied by a rise both in Loans and Advances and in Deposits, and the- latter movement is generally indicative of an increase in spending power. During the past two years, however, it has been necessary to look well below the surface to judge how far the figures of bankers' balance-sheets can be relied upon as still affording thee indications.
Thus, a year ago, when analysing the bankers' balance- sheets for 1932, I had to report a great expansion in the Deposits, which, however, so far from being attributable to an increase in. Loans and Advances, had occurred simultaneously with a heavy shrinkage under that head, and the main explanation of the increase in Deposits was then to be found in the rise of Over £180,000,000 in the total of Investments. For when the aggregate holding of the Investments of all the banks advances, it is clear that the purchases of such Securities have been made from the general public ; in other words, from bank depositors, with the .result that bank deposits increase. Nor were there many signs at the end of 1932 of the great expansion in Deposits having increased purchasing power, for trade depression throughout the whole of that year was very definitely prevalent.
We now have the paradoxical situation of the year 1933 having been characterized by a moderate revival in our home trade, while at the same time there has been sonic contraction in banking Deposits. The following table giving the figures of eleven leading joint-stock banks shows a decline in Deposits for the year of about 143,000,000 :
Dec. 31st, 1931. Dee. 31st, 1932.
£ Dee. 31st, 1933.
£ Barclays Bank.. 335,565,144 381,846,610 378,759,772 Lloyds Bank .. 333,735,455 382,142,705 364,553,939 Midland Bank .. 360,247,498 419,282,966 413,752,673 National Provincial Bk. 261,925,539 291,822,828 288,397,117 Westminster Bank .. 272,405,692 298,182,934 294,739,761 Total .. 1,563,879,328 1,773,278,043 1,740,203,262 District Bank .. 50,322,360 56,829,351 53,957,893 Manchester & County
Bank 16,148,807 18,231,732 17,570,793 Martins Bank .. .. 75,927,392 85,814,430 81,578,545 National Bank.. .. 36,978,320 39,131,746 38,537,291 Union Bank of Man- chester .. 15,638,409 19,159,664 17,393,187 Williams Deacon's Bank 29,04.3,386 33,812,263 33,498,284 Total .. 224,058,674 252,979,186 242,535,993
Moreover, the decline in Deposits was most noticeable (luring the second half of the year, although it was in that period that the first signs were manifested of a revival in trade activity. Not only so, but, as we shall see later, this contraction in Deposits also occurred notwith- , standing a further rise in bankers'. holdings of Invest- ments, although, as stated above, the movement in the Investments should,- other things' being equal, have occasioned not a fall but a rise in Deposits. I think, however, that one explanation of the decline in Deposits is to be found in the • second table showing the big fall under the head of Bills Discounted, where the decline for the year was something like £90,000,000. It must be remembered that so • meagre is the present interest rate on bankers' deposits that the general investor is probably a larger holder of Treasury Bills now than in normal times, and to that extent both the decline in bank deposits • and in bankers' holdings of Bilk finds a partial explana- tion. There is, however, another explanation-to be found in the fact that during' the second half of the year the leading banks raised_their buying: rate for bills from the !market, with the result that they obtained fewer bills themselves though at more remunerative rates, and a good-many of these bills passed-into the -hands4f-fmaneial institutions other than the Clearing banks whose figures are taken as the general basis of banking statistics for the year.
DoP. 31st, Doe. 31st,
• Dec. 31st.
f. • Barclays Bank.. .. 40,791,393 66,289,257 59,953,329 Lloyds Bank .. .. 42,587,498 76,788,343 56,887,317 Midland Bank .. 57,132,250 86,505,644 62,828,431 National Provincial Bk. 36,689,130 58,928,441 48,167,255 Westminster Bank • • 34,206,192 66,865,805 42,089,382 Total .. 211,406,463 355,377,490 269,925,714 District Bank .. 3,887,726 7,188,260 4,8811,484 Manchester Jr. County
Bank .. .
- 250,192 338,281 Martins Bank .. 1,963,868 1,133,889 895,479 National Bank.. .. 2,336,737 1,849,197 1,781,460 Union Bank of Man- chester 334,883 1,383,416 305,395
Williams Deacon's Bank
2,042,323 3.690,730 2,482,928 Total • • • . 10,846,019 15,495,084 10,090,030
In no direction, however, have the movements in the banking figures been more striking, or in some respects more paradoxical, than in that of loans and Advances and Investments. -From the table which follows it will be seen that the total of Loans and Advances of the eleven leading banks showed a decline at the end of the year, as compared with the previous year of about £35,000,000 ; but if comparison were made with two years ago the decline would be 65,000,000 ; or, if com- parison were made with the end of 1930, it would be as much as £192,000,000. There was probably never a time in modern records of banking when the proportion of Loans to Deposits was so low as now ; and while it might he argued that. in the event of a trade revival there is, therefore, ample scope for increased demands for accommodation being readily met, the fact remains that so serious a shrinkage in loans within a few years indicates very plainly how great and how prolonged has been the trade depression.
LoAss AND ADvANeEs.
De.% 31st, Dec. 31st, Dee. 31st, 1931. 1932. 1933.
Barclays Bank.. .. 172.197,031 153,158,668 148,835,468
Lloyds Bank .. 11;7.517,978 141,196,001 132,960,351 Midland Bank . . . . 197.037,464 170,230,809 164,298,658
National Provincial Bk. 142.379,043 122;231,862 111,817,395
Westminster Bank .. 131.366,485 105,747,152 102,757,300 Total . . 811,098,601 092,564,492 660,675,778 District Bank .. 19,952,328 17,690,457 17,107,971
Manchester & County 9,604,868 8,931,365 8,564,931 Bank
34,645,837 29,404,644 • 28,319,444 Martins -Bank .. • 15,722,683 14,520,190 14,729,747 National Bank.. .. Union Bank of Man- chester. 8,000,858 7,491,713 6,902,920
Williams Deacon's Bank 13,880,948 11,395,388 10,898,448 101,807,52.2 89,493,757 86,523,469
Is T8A DE REVIVING ?
The point, however, which will strike the most super- ficial observer is the fact that this decline in Loans and Advances has continued even during the second half of last year in spite of the undoubted fact of .a moderate revival in home trade (hiring that period. But the ex- planation is not, I think, far to seek.. In the first place, the trade revival itself has not been sufficient at present to require extra financial assistance from the banks, while many industrial concerns are fairly liquid at the present time and are not standing urgently in need of fresh banking accommodation. While that may account for the fact that there has been no expansion in Loans, it fails to explain why there should have been an actual shrinkage. It must be remembered, however, that on account of the premature boom of some years ago and the prolonged depression which has followed, bankers have been in the position for some years of having some fairly extensive frozen assets in the shape of outstanding 'loans against which security had been lodged. Now, while the trade revival has so far been very slight, the great ease in money has forced up the prices of securities, and this has undoubtedly enabled many outstanding debtors to realize -their securities and repay the whole . or part of their loans. And this process, while adversely affecting bankers' profit earning power, has undoubtedly contributed towards more liquid balance-sheets. _ RISE IN INVESTMENTS.
Perhaps, however, the most striking of all the move- ments in the bank figures has been the rise during the last two years in the holding of Investments. During the past year this holding of Investments has increased by about £78,000,000, while over two years the rise is even more striking. Thus, at the end of 1931, the eleven leading banks held a total of a little over £302,000,000, whereas in December last the holding represented an amount of no less than £565,000,000. The details are as follows ;
Dec. 31st, Dec. 31st, Dec. 31st, 1931. 1932. 1933.
Barclays Bank.. .. 56,564,015 87,351,718 93,145,737 Lloyds Bank .. 51,327,304 85,359,183
Midland Bank .. 42,193,262 93,065,351 118,086,3(9 National Provincial Bk. 32,8L9,393 60,749,1,93 74,831,330 Westminster Bank .. 51,451,668 72,250,653 91,49,1,575 Total .. 234,392,642 393,775,995 471,914,713 District Bank .. 18,192,804 21,805,476 23,565,Z 93 Manchester & County
Bank .. 4,858,326 5,858,997 6,592,002 Martins Bank .. 18,815,959 30,429,671 32,050,557 National Bank.. .. 15,438,327 17,026,787 17,661,696 Union Bank of Man- chester 2,756,486 3,271,496 3,804,702 Williams Deacon's Bank 7,408,886 9,753,892 10,124,277 Total .. .. 68,170,788 88,146,219 93,798,629
NOTE.—These figures do not include investments in affiliated banks.
Most if not all of this great increase in investment holdings has, of course, been in British Government securities, the steady rise in which has for the time being, at all events, added to the banks' inner reserves, for there is little doubt that present market values are very much above the average cost to the banks. Nevertheless, the movement is one which must.be giving the banks concern from every standpoint. In the first place, the trans- ference of so large a proportion of their resources from Loans and Advances to British Government securities means a great loss in annual income. Not only so, but the holding of so large a proportion of deposits in Govern ment stocks is opposed to the general principles of banking, and it will need some skill so to arrange matters that, when increased demands for loans to trade begin,. the sales of Government stocks shall be effected on terms involving no loss to the _banks. Fortunately, so large a proportion of the investments 'was acquired at prices well below the present level that it is conceivable that no serious inconvenience will be occasioned to the banks when the time arrives for reducing the holding of long-dated investment stocks. It is a point, however, which has to be kept carefully in mind, not only by th'e banks, but by investors also who may be affected wheii any important turn comes in the -monetary position.
Meanwhile, the banks and also the Discount Houses must be congratulated upon having been able during a most difficult year to maintain profit earning power. That does not mean, however, that the banks have not suffered considerably in this respect during the years of depression. In the table which follows will be found the net profits of the " Big Five " for the past year as compared with the previous year, showing very little movement, but as compared with the more normal year of 1924, the decline both in net profits and in dividends is considerable. The net profit of Lloyds Bank for last year as compared with 1924 showed a decline of just over £1,000,000, the dividend having come down also from 16f per cent. to 12 per cent. The National Provincial showed a decline in profits as com- pared with 1924 of about £370,000, with a reduction in the dividend from 16 to 15 per cent., while the West- minster Bank's net profit for last year as compared with 1924 showed a decline of about £550,000 and the dividend, which for the past two years has been at the rate of 18 per cent., compares with 20 per cent. in 1924. The Midland Bank, it will be noted, had exceptionally high profits last year as compared with 1932, but even as regards the Midland there was a-decline when compared with 1924 of about £160,000.
Net Profit. Dividend.
£ £ Balanee, £ 1924 2,067,281 1,585,431 (14%) 481,850 1932 1,574,013 1,562,202 (14%) 11.811 1933 1,604,679 1,562,202 (14%) 42,477
Net Profit. Dividend. Balanco.
1924 2,468,923 1,836,506 (16i%) 612,428 1932 1,550,511
192,691 1933 1,438,829 1,347,464 (12?'„) 91,358
Net Profit. Dividend. Balance.
£ £ £ 1924 .. 2,424,992 1,670,594 (18%) 754,593 1939 2,019,142 1.709,760 (16%) :10:1,382 1933 2,266,846 3,709,760 (16%) 337,1)86
NATION.% 1, PROT' NCIAL BANK.
Net Profit, Dividend. Balance.
£ £ £ 1924 1,974,043 1,516,707 (16%) 457,331; 1932 1,593,318 1,421,912 (15%) 171,403 1933 1,603,424 1,421,912 (15%) 181,512
WEST M I NSTER BANK.
Net Profit. Dividend.
£ £ £ 1924 .. 2,013,501 1,287,886 (20%) 725,615 1932 .. 1,495,172 1,165,444 (18%) 329,72s 1933 .. 1,464,955 1,165,444 (18%) 299,511
The fact that the joint stock banks during the curlier years of the depression were able to maintain their profits and dividends was largely due to the great size of the inner reserves which had been built up against all possible contingencies. Indeed, if the banks had so desired, they could, perhaps, have maintained dividend distributions throughout, but it would have been at. a cost of drawing still further upon contingencies and inner reserves, and very wisely the more prudent course has been pursued with the result that both as regards revealed and unrevealed reserves 'the strength or the banks was never greater than it is today. For the past year the leading discount companies, Alexanders, the National Discount and the Union Dis- count, all maintained their dividends in spite of the great fall in discount rates. ARTIICR W. Kinoy.