A study of the profit and loss statement of the various Canadian banks for the past years shows very conclusively that, notwithstanding the large increase in the amount of deposits and the volume of business transacted.
the profits have not kept pace with the continuous increase in operating expenses, and the average net earnings on assets during the last decade has dropped from 1.50 per cent to 1.26 per cent. Banks, in common with all other business concerns, have had to pay out more in salaries, rents and other expenses, yet it is seldom realized that banking charges to the public have not been increased. On the contrary, they have by force of competition and other causes been considerably reduced. The table on page 117 shows the percentage of net earnings, etc., of ten of the Canadian banks for the year 1912. It affords several interesting comparisons and demonstrates that the earnings of Canadian banks are by no means commensurate with the risk and work.
Column No. 1 will assist in giving the reader some idea of the proportion of capital and reserve to total deposits or, if the reserve ratio is required, it will be found by dividing this percentage into 100; thus, the deposits of bank No. 1 are six times its capital and reserve.
The second column gives the proportion of the total assets represented by interest deposits, and shows what a very important part the interest-bearing deposits take in the existence of a bank and how easily a slight increase in interest would materially affect the net profits.
The third column gives the net profits earned on the total assets of the banks. Considering the large amount of the turnover during the year, and the double liability of the shareholders, these figures constitute a very small return for the amount of work done and the risk taken.
Column No. 5 shows the percentage of net profit to capital, and is the method usually adopted by banks and financial papers in commenting upon the profit and loss sheet of a bank. As it shows the interest on only a part of the liability to the shareholder this percentage affords no useful information, unless used in conjunction with the figures given in column No. 6. This gives the percentage of net profits to capital and reserve and shows the true net earnings on the proprietor's capital before any dividends have been declared or amounts written off.
Column No. 7 gives the percentage of net earnings before any dividends have been declared or amounts written off. These last two columns will show where the market value exceeds the book value or vice versa.
Column No. 8 gives the actual dividends paid. It will be noted that many of the banks prefer to give their shareholders an increased return on their investment in the shape of a bonus, rather than an increase in the dividend rate. It is evident from this that banks are unwilling to make a permanent increase in their dividends in case they might not be able to maintain it, owing to the very narrow margin of profit on which they have to work.
Column No. 9 shows the yield on the market price of the stock on the basis of the figures given in column 10.
Percentage of Capital and Reserve to total
Percentage of Interest
Deposits to total
Percentage of Net Profits to
Assets after allowing 6% on Capital1
1 Capital Reserve and Undivided Profits