Belfast Telegraph

Company Report: Northern Bank Ltd

Northern Bank now trades as Danske Bank in Northern Ireland and is a wholly owned subsidiary of the same Danish bank of the same name.

Northern Bank has, in recent years, had a major injection of new capital from its parent company. In 2009 and 2010 new shares were issued at an appropriate premium and effectively added just over £200m in each year to the value of shareholders' funds. More recently, share issues at a premium, raised £173m in 2011 and £77m in 2012.

The bank has been trading in unusually difficult circumstances. In the last three years, the bank has managed to maintain customer deposits close to the peak of £5,044m in 2010. As 2012 closed, deposits were £4.956m.

A major feature in the annual accounts of the bank has been the reduction in the value of loans and advances to customers. Five years ago, loans outstanding were nearly £5.5bn. At the end of 2012, the total was just under £4.4bn; a fall of 20%. The reduction was in part (but not wholly) explained by the yearly provisions for bad debt on existing loans.

In the years up to 2010, the bank was trading with a loans to deposits ratio of over 100%. At the end of 2012, as the bank reacted to the need to rebuild its financial capital base, the ratio had fallen to 88%.

During 2012, gross lending outstanding decreased by £67m. Lending on property fell by £72m and lending to construction businesses fell by £24m. However, lending to manufacturers and farmers increased as also did lending on personal mortgages.

A feature of the results for 2012 has been the recovery in operating profits to £96m (before any allowance for the further bad debt provision). However, a large contribution to the improvement stemmed from an exceptional income of £43m linked to the accounting for pension costs.

Net interest income earned by the bank had fallen to £126m in 2010. In 2012, net interest earned was £119m.

The trading position of the bank was effected by a fall in the ratio of costs to net income. Operating costs were usually high at 75% of net income in 2010. Since then it has fallen, in steps, to 72% in 2012.

Average employment in the bank has fallen slightly in recent years and averaged 1,508 people in 2012. That compares with 1,642 two years earlier.

The defined benefit pension fund for bank employees holds assets valued at the year-end of £853m. The value of pensions fund assets improved in 2012 and now, after actuarial rule changes, has posted a surplus of £82m.

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