Finance

Scottish Banking

[By A SCOTTISH CORRESPONDENT.] IN common with their contemporaries elsewhere, the- Banks in Scotland continue to ,operate under conditions_ by no means favourable to banking profits, the long protracted incidence of low rates in London, with the probability of an indefinite continuance, and the difficulty of utilizing surplus funds in Scotland resulting more or less in marking time. The various institutions are, however, making the most of opportunity ; com- petition for business is keen, and public confidence in their solidity and prudent administration remains un- impaired. Disclosed profits are in every case amply adequate to provide dividends at former rates, a condition of affairs which reflects the wisdom of the conservatism practised over a long succession of years during which ample reserves were accumulated. The small margin of profit in those difficult times, with expenses in inverse ratio, would probably do little more than meet running expenses. Fortunately for the shareholders, a background of substantial reserves, prudently invested, enables the Banks, so far as distributions are concerned, to be more or less independent of the moribund conditions in the market for commercial loans.

The fact has to be faced that anything in the direction Of a trade boom is hopeless under existing conditions, but notwithstanding the suspicions and uncertainties which hang like thick clouds over Europe, hope has not yet succumbed to pessimism, and export trade does certainly show some signs of betterment despite the irritations due to Exchange difficulties and the many restrictions ivhich negative the enterprise attendant upon production. As regards the home trade, a definite measure of recovery is generally admitted, and in the West of Scotland, where most of the heavy industries are situated, an improvement is decidedly in evidence. On the other hand, however, both agriculture and fishing still show very poor results, while distilling, with which the grain market is closely allied, remains penalized through exorbitant taxation. The hopes entertained a year ago that the Budget of 1935 would appreciably alleviate the burdens placed upon industry generally, have not materialized to anything like the extent which was at one time foreshadowed, and in the Glasgow area a progressive stiffening of local rates has had a discouraging effect. So long as those anomalies prevail, in like degree the quickening of trade is restricted.

Under present conditions the attitude adopted by the public points to a preference for keeping resources at call, and that despite the fact that over a very con- siderable period the deposit rate has remained pegged at 1 per cent. Some years ago, with the object of attracting small deposits, the banks in Scotland set up savings departments in which sums amounting to £200 in any one year were accepted at 2/ per cent. Lately this privilege has been curtailed, and under existing arrangements clients in this department are restricted to a lodgement of £100 in any one year. Interest—calcu- lated upon the minimum monthly balance—is only 1 / per cent., and the maximum accepted at this rate is now £500.

DEPOSITS AND LOANS.

An examination of the reports issued during the course of 1934 showed lodgements amounting in aggregate to A283,873,000, an increase of £3,273,000 as compared with 1933. Since the present year opened, the expansion .is even more marked. In January last the North of .Scotland Bank in its published accounts showed deposits amounting to £24,636,009—a record in its history. The Clydesdale Bank, whose report appeared at tfie same time, showed deposits at £31,496,403, an increase of round about a quarter of a million. The BritiSh Linen Bank, a month later, showed £30,357,074, and the Bank of Scotland which issued its report in March disclosed lodgements of no less than £36,653,8 15, an increase of well over a million as compared with 1934, and the highest total shown since 1922. The Union Bank of Scotland which takes reckoning in April showed deposits amounting to £29,944,043, an increase of almost One and a half millions.

At the annual meeting of the Bank of Scotland, held on April 2nd last, the Governor, Lord Elphinstone, K.T., gave some interesting information as to the composition of the deposit figures, and the most notable feature was the extent of the business. There is a popular fallacy abroad that banking deposits are for the most part large in bulk, but millionaires, whether they be companies or individuals, generally seek more remunera- tive channels of investment. An examination of the Bank of Scotland accounts showed that the average sum standing at the credit of their customers was under £300, while m the case of over 95 per cent. of their clients, the average creditor balance was under £115. Those figures give some idea of the extent to which banking facilities are taken advantage of, and the large number who have a direct connexion with the senior bank. It is not unreasonable to infer that similar experiences occur in kindred institutions.

It is, of course, in the lending departinents that the long protracted incidence of restricted trade—especially as regards export business—is most seriously reflected. According to reports issued in 1934 the decrease in advances was over £6,500,000. Since the year opened, a certain increase in lending has taken place, but progress in this direction is slow, and the requirements of industry are still far short of being able to utilize the surpluses available. Competition in Scotland for good commercial loans is unusually keen, and no bank will turn down a proposal - submitted with reasonable security and of- a character suited to banking re- quirements. Two years ago, one of the Banks in Scot- land published details of the distribution of their advances, Which showed that out of £10;407,090 no less than £1,784,000 was lent without any formal security at all, the bank relying solely upon the personal character and standing of those particular borrowers. Those numbered well over 5,000, and a large proportion were agriculturists and ' live stock salesmen. ' In April of the current year the bank referred to was able to report that the proportion of unsecured loans had suffered no diminution but that it remained as high as ever.

BANKING ADJUNCTS.

One of the most useful auxiliaries in Scottish Banking is to• be found in the " Scottish Agricultural Securities - - Corporation, Limited," the share capital of which was provided by four of the banks, and which commenced operations in the autumn of 1933. Scotland is still in the main an agricultural country, and the Corporation has as its objective the granting of long-term loans foi• the benefit and encouragement of the fanning corn,. :munity. The facilities which it offers have been widely taken advantage of by the constituency which" it Was established to benefit. While the Joint Stock Banks allow liberal facilities to farining clients, acconamodation is necessarily limited to. loans of a temporary nature 'for seasonal requirements. The Corporation grantS "facilities for the purchase of holdings, and for the earryi4 -out of permanent improvements under .the. Lands Acts. PropoSals for accommodation are received by allthe banks 'for subsequent review by'the Directors of the Corporation.

(Continued on page 955.)

Finance

(Continued front page 952) An important department of banking enterprise identified with recent years lies in the direction of trustee and executory business, which is now undertaken by all the banks. No doubt this breaking of new ground was primarily a matter of self defence, promoted to bring Scottish practice into line with conditions operative in the south and to offer clients facilities similar to those put forward by English banks and insurance com- panies. The fact had to be faced that the old-time custom of testators nominating a friend or relative— that is, an individual trustee to administer an estate following upon a death—was rapidly giving way to the corporate trustee principle, of which in England the Public Trustee was the most notable example. In Scotland, the banks leave the drawing up of wills and settlements to the legal profession, and their practical administration—if the trust is approved—follows later. To what extent trustee business has accumulated is not easy to estimate, but the fact that trustee departments in the banks have had to be enlarged to cope with an increasing demand, warrants the inference that progress has been substantial and that trust funds to the extent of a good many millions are now under their direction and administration. Continuity of tenure, the pledge of secrecy and unquestioned integrity are each in their own way attractive arguments. As time progresses it is safe to assume that safe-custody business in the field of succession will rank among the most important of the many services which the banks in Scotland,- as elsewhere, render to the community.

BANK EXTENSIONS.

The trend of business southward has not escaped the notice of those responsible for North Country adminis- trations, and the widening of their London connexions has been a notable feature, more especially over the last decade. The acquirement of Drummonds business by the Royal Bank of Scotland. in 1924 reversed a .process previously operative under which London banks bought up Scottish institutions, and the most important event identified with 1930 was when the Royal Bank again acquired a new auxiliary through the purchase of Williams Deacon's Bank, itself a member of the London Clearing House, and with established connexions not only in the City but also in an important industrial area in the Midlands and North' West. None of the other banks in Scotland have so far embarked on so large an enterprise, but all of them have now opened branches west of Charing Cross, and in some cases operations are already conducted at several offices in that locality.

In Scotland itself considerable attention has been paid in recent years to the modernizing of premises and to the erection of new buildings, especially in the larger centres. Edinburgh, Glasgow, Dundee and Aberdeen have all benefited in this direction. The Commercial Bank of Scotland has recently completed a notable scheme of reconstruction whereby its head office has been equipped with the most up-to-date improvements, and internal arrangements remodelled. The largest enterprise at present under way is to the credit of Atbe National.Bank of Scotland, which has decided to rebuild on an entirely new and improved scale the headquarters in St. Andrew Square. Temporary accommodation is being pushed rapidly forward, and for some years to come the bank will conduct operations from premises in George Street. The magnitude of the new undertaking will provide employment for numerous trades, and the head office, when completed, bids fair to rank among the chief architec- tural . adornments • of the far-famed Edinburgh square. It is right and fitting that the enterprise shown by the banks, and their contribution to the problems of employ- ment, should be recognized. Through this means, an appreciable amount of profit earned in more prosperous Years again finds distribution in the constituency from which much of it was, originally drawn.

(For Financial Notes,. see page 956.)