Posted on Sunday 16 October 2011 by Ulster Business
At a time when Eurozone finance ministers and the US government are trying desperately to hold the global economy together and financial markets are jittery, it is perhaps no surprise to learn that many businesses are again taking stock.
Northern Bank’s Kevin Kingston has a very real sense that firms who were beginning to look at investments and acquisitions at the start of this year are now not so sure of themselves.
But the bank’s Managing Director of Business & Corporate Banking believes it is essential that businesses have the courage to keep making decisions for growth, rather than putting them off until such time as the economy has clearly recovered.
“Companies are definitely more cautious than they were even a year ago,” he told Ulster Business. “There was improving optimism in the first few months of this year, particularly among those businesses trading internationally. The global exporters were really doing quite well and we were starting to see requests coming through for increased working capital lines, which was something we hadn’t seen for a couple of years.
“But over the summer the mood has, not surprisingly, become more subdued, with the impact of both the situation in the US, and the Euro crisis taking their toll on business confidence. I would be concerned that people are again starting to think about putting investment decisions on hold until they see what way the economy pans out,” he adds. “Naturally we wouldn’t suggest that businesses should be taking reckless risks, but there is an element of our destiny being in our own hands here. Simply waiting for things to recover isn’t the way to get our economy moving again.”
Kingston believes the economy should expect “a long slow climb out of recession back to growth” with the bank forecasting only 1% growth this year. But he emphasises it is those businesses that are proactive and who adapt to this new economic environment – the new “normal” – that will prosper.
“We need to keep moving forward as an economy. If we focus simply on the downsides and on waiting for growth to return, businesses could very well miss out on opportunities,” said Kingston.
Like most of the world’s financial institutions, Northern Bank itself has had to adjust its business model to the new economic environment.
But, explains Kingston, the bank remains in good health with a strong balance sheet position.
“Our customers have not been immune to the challenges of the downturn and it is inevitable that we had to make prudent provisions. Given the ongoing deterioration in the ability of some customers to repay borrowing, those will probably continue for a while to come,” he said.
“However this doesn’t threaten the viability of our balance sheet. We’re in the fortunate position that we have the funding and liquidity to comfortably absorb these provisions. We need to support customers and we have the appetite to do that. The fundamentals are still strong.”
Northern has been perhaps the most vocal of the so-called “big four” in Northern Ireland when it comes to drawing a line between itself and its competitors. Kingston believes misunderstandings arise when the business community and politicians at Stormont look at the banks as a collective, rather than with a full understanding of the individual organisations, with their own challenges and opportunities.
Contrary to some claims targeted at the wider banking industry, Kingston says Northern Bank is lending money, but he stresses there are factors at play that mean comparisons with prior years don’t tell the whole story.
“Our customers are very conservative, they are paying down debt, and they are paying down debt faster than we are lending money at the moment. In our half year results our deposits were up 5% and our balance sheet lending was down about 6%. But yet we’re still approving about a billion pounds on a 12 monthly cycle,” he explains.
“My team is working very hard to find customers to do business with. Are we lending to every proposition that comes through the door? No we are not, and I think people would understand that. We are in a strong position and both for our customers and our shareholders we have to stay that way. But at the same time the appetite to lend is absolutely there and that appetite is clearly demonstrated by the number of businesses taking the decision to move their banking to us.”
The bank has continued to invest in its business banking and corporate team and will make further appointments over the course of the next year to ensure it has the right blend of traditional banking skills and financial engineering capabilities to continue to distinguish it from the competition and help it win new business customers.
Some of those supporting Kingston in an experienced team at present are Head of Acquisition Ivan McMinn, Business Acquisition Manager Oonagh Murtagh, and Senior Cash Management Specialist Karen Kennedy. The expanding business and corporate team will play a vital part in the bank’s plans for ambitious growth, even in a slow paced recovery, he says.
Despite its strength, the bank has, like so many of its business customers, had to adapt what it offers – moving from the traditional focus on lending to one that focuses on the entire package and all of the ways in which a banking team can add value to the business customer. That package includes products needed by ambitious trading businesses, such as cash management and trade finance, which have helped the bank build loyalty by saving customers money.
Loyalty is of course something that customers want to work both ways and Kingston says his bank is genuinely prepared to work with existing business clients who find themselves in difficult circumstances.
He adds that there are numerous examples where the bank has helped firms that have perhaps been purely focused on the Northern Ireland market to realise the need to re-engineer their business model and refocus externally – Smiley Monroe is a case in point.
“We would always aim to support those companies with the ambition to change and adapt. It is those companies that will make it over the longer term, the ones that can assess their environment, adapt their business model and continue to move forward,” says Kingston.
“It is by having the right relationships with customers who are investing, growing and trading internationally, that we as a bank can expand our own business. It is in our interests to have those customers with Northern and to support them, because we thrive on the back of their ambition.”
Reinforcing its support for outward looking businesses, the bank has become a major partner in the Northern Ireland Chamber of Commerce’s Export First initiative, alongside law firm A&L Goodbody and accountants ASM. Kingston says the bank got involved because the programme is about more than just telling firms to get out there and export, instead offering practical advice to help businesses understand the opportunities and challenges that exist globally.
“It is often the practical considerations that can be intimidating, but which are manageable once you’ve got someone to help you work your way through the process. We believe exporters are a huge part of the future of the local economy,” he adds.
With a greater awareness of the dangers of high levels of leverage, Kingston believes there is a bigger role for the bank in terms of financial engineering. Structuring debt, making the most of a company’s balance sheet and thinking about the right product for the specific needs of the customer have never been more important.
Added to that he thinks there is a need for businesses to consider other types of finance alongside debt, such as private equity and venture capital – both of which have seen relatively modest uptake in Northern Ireland.
“I think we are moving to a world where, in order to get transactions done, particularly acquisition/equity related transactions, we are going to have to move from a position where historically it was a bi-partite arrangement between a bank and a customer, to a tri-partite arrangement where an equity provider will sit alongside a bank and the customer,” said Kingston.
“We’ve seen the importance over the past few years of building financial structures that are capable of surviving the downswings as well as the upswings. That’s where equity can have a real role to play. It is a different mindset for the typical Northern Ireland family company. But for a business that is ambitious, putting in place the right equity platform is one way to ensure they are best placed to seize the opportunities that are in front of them.”
Smiley Monroe is Europe’s largest producer of endless conveyor belts for the mobile crushing, screening and recycling sectors. Managing director Vaughan Monroe recounts the challenges his business faced in the downturn, his relationship with Northern Bank throughout that time, and how with the support of the Bank, the business has emerged with confidence into new markets.
The first glimpse of the challenges that we were to face began to emerge in the autumn of 2008. After six years of sustained growth, we faced the stark reality of order cancellations and uncertainty. Our clients typically amassed stock. Before the year was out some of those “what if….” possibilities had come to fruition.
The downturn may be characterised by the tough decisions that many businesses have had to take and we were no exception. We took an uncompromising position on cost reductions, which was not without its inevitable impact on our staff.
We brought the Northern Bank team up to speed with our challenges and the actions we were taking at the earliest opportunity. The bank was entirely supportive as we renegotiated contracts with suppliers and we stayed close to the team throughout this process, with a shared priority to stop what might have become irrecoverable haemorrhaging of cash from the business.
We had moved swiftly to stem the flow, and the Bank put its weight behind our efforts. We established conservative and realistic targets. Three main imperatives would steer our way to recovery though an agreed new business model: achievable financials, stricter control of credit and costs, and the potential revenue from export.
We had been exporting since the 1990s but the challenges presented by the downturn were to give our export focus new momentum by 2009. Northern Bank had always been encouraging of our overseas expansion and we kept the team regularly appraised of our plans, forecasts and successes. Despite our vulnerability at a time of crisis for the business, Northern Bank’s genuine interest in our export potential enabled them to stand firmly beside us. That relationship and investment from the Bank enabled us to continue with the modernisation of our factory – work which was underway but far short of completion when our problems began and which was to be crucial in our recovery.
That support enabled our ambitions to be realised and gave us a substantial competitive edge, allowing us to aim not just for survival and recovery but also for diversification, growth and a new and sustainable way of operating. We have since diversified into new sectors that have weathered the storm better than others (including fisheries, food, pharmaceutical and packaging). We are also introducing lighter duty conveyor belts and gaskets to traditional and new customers, particularly in the growing recycling sector.
Despite the challenges we faced, we maintained a steady presence and profile in both existing and potential new markets. The combination of the right financial controls and sustained marketing ensured that we had the ability to react quickly when business opportunities arose.
The challenges and opportunities of the past four years have been characterised by the support of two teams. Our own staff team at Smiley Monroe showed unparalleled commitment and remain central to the ongoing success of the company, whilst maintaining our involvement in the local community in which we operate. The Northern Bank team stood by our plans and the creation of a new company model with a flexibility and interest that has been vital to the confidence that was so important in turning around our business.
With those teams behind us, Smiley Monroe has been able to stay the course, fulfil its ambitions, and expand further its world-wide reputation for service and solutions.