Posted on Monday 28 May 2018 by John Mulgrew

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A decade on from the biggest economic crisis in a generation, John Mulgrew asks whether Northern Ireland’s banking sector is fully back on track

Has banking returned to a pre-crash 'normalised' environment? Tens years on from the recession, banks are in profit, with the bulk of those profits relying less and less on so-called writebacks - cash set aside to cover expected loan losses that can then be released.

But while lending books are burgeoning, whether the sector is now “normalised” is still up for debate.

“It would be hard to view this as a full return to normality, if indeed there is such a thing in economic terms,” Neil Gibson, chief economist with EY in Ireland told Ulster Business.

“A successful banking sector is essential to support a growing economy and the return to profitability and an uptick in lending for the major banks in Northern Ireland is extremely welcome.

“It comes at a time when employee job numbers have returned to pre-recession levels and the unemployment rate has equalled its lowest recorded level.

“... interest rates remain extremely low and real incomes remain lower than before the crisis. Property prices remain well below the unsustainable peak experienced a decade ago and the region is currently without a functioning Executive.”

With Danske Bank, pre-tax profits soared to £147.5m in 2017. That was driven by a strong surge in mortgage lending – up almost a third.

Overall, lending balances were up 9% year-on-year and deposit growth has also been marked, rising by 5%.

“In the small business sector, last year we completed a programme of relocating our small business advisers back into key branches throughout Northern Ireland,” Simon Little, head of communications at Danske Bank, said.

“This decision was taken as a result of feedback from small businesses and it has allowed our people to be more accessible and closer to customers. These changes have made a tangible impact, with an average of 37 new small business relationships being established every week.”

Richard Donnan, head of Ulster Bank in Northern Ireland, says there is “no doubt that the economy and the banking sector are in a more normalised environment than they were 10 years ago, or even five years ago”.

In the last year, its corporate lending book has grown by 15%, with a 29% increase in small business drawdowns.

“Indicators such as the Ulster Bank Northern Ireland PMI continue to point to relatively strong growth in the private sector and Ulster Bank is playing an active role in supporting companies and consumers.

“Our latest Northern Ireland results show the way in which we have been changing and improving our organisation to become a simpler, safer and more customer-focused bank.

“We are a leading supporter of business and personal customers across Northern Ireland and we have robust policies in place to finance good deals and play a leading part in local growth.

“... we have retained the largest share of the personal and business current account market in Northern Ireland.

“Overall, our business in Northern Ireland continues to show a strong performance, with a profit driven by positive underlying performance across all areas of our business as well significantly reduced impairment writebacks, which point to the more normalised environment in which we are operating”.

Neil Gibson said that “with an evolved regulatory environment and scars still remaining from the recession in many locations and within particular businesses it is perhaps better to think of the sector as reshaped and operating in an environment that is different to what went before”.

“Put another way – ready for today, rather than returning to yesterday,” he said.

“Attitudes to lending and risk are changing as the recession slips further into the rear view mirror but the uncertainty of Brexit and government spending plans still present headwinds for local lending.

“Nevertheless demand is likely to continue to tick upwards, not least because many firms have not invested significantly during the fallow years and the need to upgrade premises and equipment, to recruit and retrain and to seek out acquisitions and make growth enabling decisions is becoming more urgent.”

Bank of Ireland says that since the recession “much has changed in what is clearly a re-sized business lending market in Northern Ireland”.

“The opportunities for lending are across a number of sectors SMEs and trading businesses, with the fundamentals of lending to the fore. In particular the focus is on cash generation and repayment capacity, the strength of the business case and proposition and the experience and quality of the leadership team.

“The breadth of choice for business borrowing is probably wider than ever. Over the last three years Bank of Ireland lending approvals to businesses in Northern Ireland have increased by 43% and the latest data from UK Finance confirms that demand for business finance across the market has been steady rather than spectacular over the last 12 months, with the volume of applications, approvals and drawdowns reaching a 'new norm'.

“With a modest forecast for regional growth, the likelihood of another small interest rate rise shortly and ongoing Brexit-related uncertainty, we do not anticipate this changing significantly in the near-term. To date, the Brexit outcome has had a limited impact on performance overall although some potential corporate and business investments are on hold and ready to be actioned when the fog lifts.”

Brian Gillan, head of business and corporate banking at First Trust Bank, said that 10 years on from the recession “we are potentially starting to see a two tier market emerging”.

“Larger corporate banking customers have returned to a healthier state, but we’re still seeing uncertainty in the business environment for SMEs with both approval levels and lending stocks quite flat.

“We are seeking to help businesses and one way we’re doing this is by working with customers in different sectors to understand and plan for the potential implications of Brexit.

“Uncertainty is a new certainty, and our guidance to SMEs remains consistent. Supply chains and business operating models need to be continually reviewed against the issues, challenges and opportunities that are presenting themselves in a changing market.”

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