Belfast Telegraph

Evidence suggests banks have been tighter lenders north of the border

By John Simpson

Because of the differences in the organisation of the banks in Northern Ireland, it is difficult to get a composite picture of their trading activities.

There is some evidence that Northern Ireland business borrowing has been more conservative than in the Republic of Ireland.

Given the recent rapid fall in bank profits and the unusually large number of loans which have defaulted or are in arrears, some measure of how their Northern Ireland businesses are performing would be useful.

For example, do the banks in Northern Ireland have a good record in collecting, proportionately, more deposits to help them extend their lending?

Alternatively, do businesses in Northern Ireland borrow heavily so that the loan to deposits ratio is high? If the ratio is high does this point to a greater risk of default in the recession or a greater willingness to agree riskier loans? There are some small pieces of evidence.

The Ulster Bank reports suggest more conservative bank lending in Northern Ireland than in the Republic.

In the last three years, the ratio of lending to deposits in sterling has been quite conservative.

The end-year average has ranged from 133% to 178%. This contrasts with the same ratio for business in euro which has been double the sterling ratio at 287% to 339%.

For Northern Bank the loan to deposits ratio in 2009 was a more modest ratio than that for sterling in Ulster Bank.

The ratio was only 112% in 2009 and this compared to 120% at the end of 2008.

Pre-tax losses at Northern Bank in 2009, including provision for non-performing loans were £183m.

A comparison of recent profits (and losses) can also be made for Allied Irish Bank (AIB) and its subsidiary, First Trust, in Northern Ireland.

The pre-tax loss in AIB in 2010 was €12bn (or nearly £14bn). The comparable loss in First Trust was £680m.

This partial evidence is consistent with a conclusion that lending in Northern Ireland has been tighter than south of the border.