COMPANY MEETING

THE ROYAL BANK OF SCOTLAND

Higher Profit and Dividend

THE Annual General Court of Proprietors of The Royal Bank of Scotland will be held on 1st March in Edinburgh.

The following is an extract from the circulated statement dated 5th February, 1966, of the Gover- nor of the Bank, His Grace The Duke of Buccleuch and Queensberry, K.T., P.C., G.C.V.O., LLD.: As a continuance of the policy which I outlined in my last year's Statement, I shall first give the principal features of the Consolidated Accounts of the Three Banks Group before turning to those of our own Bank. Current, Deposit and other Accounts of the Group show an increase of £58.8 million over the 1964 figure, reaching a new peak of £440.2 million.

The Group Consolidated Accounts include for the first time the figures of Glyn Mills Finance Company, the wholly-owned subsidiary of Glynn, Mills & Co., Whose formation in January, 1965, I mentioned in my last Statement. Glyn Mills Finance Company have had a successful first year's trading and of the increase of £58.8 million in balances left with the Group by its customers, over £30 million is attribut- able to this Company.

The Company will, I am sure, continue to provide an increasingly valuable service to customers of the Group. The Group total of Advances at the end of the year was £211.5 million, an increase of £25.9 million from the previous year.

Investments in British Government Securities which are valued at or under market prices in accordance with Group policy, totalled £46.4 million.

Group net profit for 1965 was £3,117,741 as com- pared with £1,996,663 for 1964, a rise of 56.1 per cent. This is a result of the higher interest rates ruling during the year, combined with the increase in the resources available to the Group which have enabled us to offset steadily rising costs, particularly in respect of salaries and other staff benefits.

To the Group Profit for the year falls to be added £804.493 brought forward from 1964, making avail- able a total of £3,922,234.

Your Directors recommend that there be paid a final dividend at the rate of 101 per cent actual, making with the interim dividend of 81 per cent paid on 15th September last, a total of 19 per cent for the year (17 per cent in 1964).

This will involve a disbursement of £703,237 if the recommendation is approved. Allocations to Reserve Funds and Contingencies absorb £1,650.000 leaving £999,709 to be carried forward to 1966.

Williams Deacon's Bank Ltd. continues its policy of expansion and has increased its branch repre- sentation during the year with the opening of new branches at West Moors (Bournemouth), Harwood (Bolton), Newbold (Chesterfield), Norwich, Oxford, Poynton (Cheshire), Harlescott (Shrewsbury), and Wellington Road South, Stockport.

I now turn to The Royal Bank of Scotland's own Balance Sheet. Our deposits at £159.4 million show an increase of £7.8 million over the 1964 figure, a rise of 5.1 per cent. The average depdsits for the year were in fact higher by nearly £5.8 million. Notes in circulation at £16.7 million show an in- crease of £1.2 million on the 1964 figure.

The ratio of our liquid assets to our deposits and note liabilities was 38.2 per cent (35.6 per cent last year). Advances at £79.8 million are £4.4 million higher than at the end of 1964. Despite the increase, they in fact show a considerable reduction from the average at which they have been running for some time, a reduction which is likely only to be very tem- porary. They have been financed partly from the increased resources available to us and partly from the sale of investments in British Government Securities which stand at £19.3 million (£23.9 million at the end of 1964).

CREDIT RESTRICTION We have been operating under Credit Restriction for the entire year under review, three official letters of guidance covering the period. Under their terms we have to give every possible encouragement to exports, restrain the growth of finance for imports and restrict the overall rate of growth of advances to the private sector to an extent not exceeding an annual rate of about 5 per cent during the twelve months to March 1966.

Direct action on our liquidity was also taken during the year by a call once again for Special Deposits—£700,000 in the Balance Sheet. These de- posits were provided for as a control measure in 1958 and were first demanded in 1960, subsequently being released in 1962. For the Scottish Banks it is encouraging that once again in the special circum- stances of the Scottish economy they have been asked for only one-half per cent of deposits as against 1 per cent from the Clearing- Banks.

It is apparent that curtailment of bank lending in one form or another will continue to be one of the restrictive measures of Government policy for a considerable time.

The prospects of an early decrease in Bank Rate which were emerging towards the end of the year have been retarded by the raising of the American Discount Rate to 4+ per cent. This increase has added to the difficulties of American Companies in financing expansion in Scotland and in turn our own Treasury restrictions make it more difficult for the banks here to fill the resultant gap.

NEW BRANCHES

New Branches were opened during the year at George Street, Aberdeen; Dumbarton; Fraserburgh; Beckford Street, Hamilton; Renfield Street, Glas- gow; and Glencoe (sub-branch to Kinlochleven).

I indicated last year that it was our intention to increase the number of our Mobile Banks which provide banking services to some of the more remote and scattered communities. In furtherance of this we have introduced this type of service to selected districts in Lanarkshire based on our Biggar, Lanark and Lesmahagow Branches, and shall shortly intro- duce.. it in Perth and Dundee districts operating from Perth Branch and from Perth .Road and Hilltown, Dundee, Branches: We already have awhile banks

operating in the north-west of Scotland, Arran and Strathspey.

COMPUTER ACCOUNTING

Our Computer Centre equipped with a Leo III data processing system was formally opened on 5th November by Lord Nelson of Stafford.

The programme which I outlined last year has been implemented and the current accounts of twenty-four Branches are now being processed by the computer. This number is being increased every week.

THE ECONOMY The year under review has been overshadowed by Balance of Payment difficulties. The Government's policies are meeting with some success and they hope that overseas payments will be in balance by the end of 1966. But even if the trade gap is closed, repayment of the large foreign loans has to be made. To achieVe this, both imports and domestic con- sumption will have to be restrained for some con- siderable time and exports increased beyond their present rate.

The National Plan sets the targets at which we must aim and although it is too much to expect that they will all be attained, it is always better to have a target to aim at, however difficult, than none at all. If the Plan is to meet with success, how- ever, a strong Prices and Incomes Policy is essential and this still remains one of our most pressing eco- nomic problems.

Looking more particularly at Scotland, there are encouraging signs that a breakthrough in the diversi- fication of industry has been attained and that pros- pects for sustained growth in industry and employ- ment appear much more assured. That we are no longer so dependent on heavy industry is very welcome.

A great measure of credit in achieving this is due to the efforts of the Scottish Council (Development and Industry) and I feel it might be appropriate if I quote from their Annual Report—`during 1965 . . . industrial progress has been rapid, measured by any standards. Employment has continued to rise. Established industry has maintained its expan- sion and diversification. New companies have arrived in greater numbers than before. Scottish ex- ports have risen. Industrial confidence has been maintained'.

Much remains to be done, of course, and while Scotland is doing reasonably well in a difficult eco- nomic period, there are still one or two weak spots here and there, particularly in some of the tradi- tional heavy industries. The number of Scottish collieries which are nearing exhaustion or which will eventually be closed as uneconomic'does not make pleasant reading, but in the end the competitive position of the National Coal Board will be a great deal stronger. What is required is the provision of more advance factories and greatly increased re- training facilities, particularly in the districts affected by the pit closures. There is still considerable scope, too, for the allocation of a much greater share of Government technological sPending in Scotland.