Posted on Tuesday 25 June 2013 by Ulster Business
Brian O'Reilly, Global Investment Strategist, Conor Cahalane Head of Davy Northern Ireland and Conall MacCoille, Chief Economist after the company's briefing to business leaders.
That was the stark message for Northern Ireland's policymakers put forward by Conall Mac Coille, chief economist of Davy Ireland, and author of a new, comprehensive report on the state of the local economy and the challenges to future prosperity.
Addressing more than 60 Northern Ireland business leaders in Belfast, Mac Coille said that while policymakers elsewhere in the UK and Ireland had introduced measures to address debt and lending issues, in Northern Ireland, the unique make-up of the local banking sector and the lack of tangible data available meant the true extent of the challenges for the economy could not be realistically assessed.
The Dublin and Belfast-based investment managers also said in its report that because there was no readily-available data on outstanding non-performing loans in the Northern Ireland banking system, forecasting for growth and economic performance was problematic.
According to Davy, the state of the local banking system may also be making it more difficult for the economy to benefit from the recently-introduced scheme to free-up UK bank lending.
The 'Funding for Lending' scheme, which was designed to incentivise banks and other lenders to make more money available to homeowners and non-financial businesses was introduced by the Bank of England, and came into effect in August 2012. It was envisaged that the benefits of this cash injection would spread throughout the whole of the UK but only Ulster Bank is availing of the scheme in Northern Ireland.
Conall Mac Coille described the four main banks serving Northern Ireland as "a bit of a rogue's gallery".
"As is the case in the Republic of Ireland and elsewhere in the UK, since the start of the recession, tightened credit availability in Northern Ireland has reflected the cost of acquiring funds, capital requirements and a change in the assessment of risk.
"However, policy initiatives designed to promote credit availability are complicated by the dominant presence of non-UK banks – and specifically those from the Republic of Ireland, which have become more focused on reducing their debts under the terms of the EU/IMF bailout. This can be constraining to lending in Northern Ireland," he said.
"All of these factors could well mean that the Bank of England's Funding For Lending programme, which was designed to help the economy, has had limited scope in improving the flow of credit to help Northern Ireland households and businesses."
Davy said Northern Ireland's policymakers and independent forecasters would benefit from access to key lending data which all the banks hold on the local economy. It said it was also concerned that lending data collected by the British Bankers' Association had not been made available for use by independent forecasters.
Northern Ireland's Economic Advisory Group is in receipt of this data. However, it was only made available to this economic think tank on the basis that it remained confidential.
Conall Mac Coille said the lack of banking data available showed "complacency" at a time when the banks serving Northern Ireland could not be relied upon to provide the lending needed to fund economic growth. He said the banks "should be compelled" to publish the number of non-performing loans on their books.
"Economic forecasts must be based on clear economic fact and data. Without these figures, independent assessments are difficult to make. As is largely the case with data availability around personal debt and mortgage arrears, there is little real data to assess the impact of the curtailed credit availability on Northern Ireland's economy, which means the scale of the problems may not yet be fully realised," he said.
"Broadly speaking, the evidence suggests that those economies that emerge best from property market corrections are those that properly re-structure their debts and their banking system quickly. In the Republic of Ireland, this process is a clear focus of government and the Central Bank of Ireland.
"However, there appears to have been little focus in the UK to date on the especially large property market correction in Northern Ireland and its implications for the region's economic prospects. As an independent forecaster, we would welcome greater transparency."
The Davy economist also said that while it was correct that the local economy focus on exporting, increasing exports would not "do the work on its own" if the banking sector couldn't do the job of lending to take advantage of opportunities.
Other key messages contained in the Davy report on the Northern Ireland economy included:
• Northern Ireland is still struggling to shake off the legacy of a house price bubble and the spill-over effects from recession in Britain and the Republic of Ireland.
• Northern Ireland requires an immediate and significant focus on training and education to address severe skills shortages if it is to maximise the benefits of a cut in corporation tax.
• Northern Ireland's economy is showing early signs of stability based on recent, short-term indicators, including unemployment data. However, significant challenges remain for construction. The outlook for the services sector was also more promising.
• The manufacturing sector is well placed to take advantage of any recovery in global demand after a difficult year in 2012.
• Business insolvency rates are easing, but personal insolvencies rates have not yet peaked.
• Northern Ireland lags significantly behind the UK and the Republic of Ireland in its focus on R&D and innovation –key drivers for economic growth and prosperity.
"Like other regions, the economy is struggling to shake off the effects of an unprecedented global downturn and a devastating property correction, and, like those jurisdictions, Northern Ireland remains heavily reliant on an international recovery, the outlook for which remains questionable. That said, however, there is much that can be done locally to ensure that the economy has a firm basis from which to build future growth," added Conall Mac Coille.