This year should see renewed business investment as economic recovery takes hold, the chief executive of Danske Bank has said.
The Danish-owned bank claimed two 'firsts' yesterday – the first of Northern Ireland's 'big four' to announce 2013 results, and the first to reveal a full year in the black after five years of losses.
Dankse had pre-tax profits of £11.4m in 2013, which chief executive, Gerry Mallon (right), said was driven by growth in underlying income, cost control and a 70% fall in impairments. And he predicted a nascent consumer recovery of 2013 should continue, with the bank forecasting 2.4% growth in the economy in 2014.
"The recovery of 2013 was more consumer-led than business-investment led," he said. He pointed to an 9% increase in deposits, from £4.8m to £5.3m, as evidence that people had been holding on to money, which they were now getting ready to spend.
"Deposits are up in all lines, and there's been a gradual accumulation of deposits in business and personal. But it wouldn't be entirely unexpected to see an increase in deposits in a downturn. The accumulation in deposit base shows there is money out there."
And he said consumer spending would go up, despite most people being stuck with stagnating wages. "In a lower inflation and lower interest rate environment, they may feel less of a threat."
The improving housing market was also helping. "Sentiment and confidence has been a big factor and they are now prepared to relax the purse strings."
Businesses would also loosen the purse strings during the year. "Our expectation would be that as the broader good economic news continues, we'll start to see businesses becoming more confident, and sooner or later they will start to reinvest. We will see company capital reinvestment, because the whole process of deleveraging can't continue ad infinitum."
Mr Mallon said business banking had grown in 2013, with veterinary firm, Norbrook, among the new acquisitions to its customer base.
There was over £450m in new and increased lending to business customers, mainly directed at trading businesses which were exporting.
And there was the capacity to continue to lend in 2014. "Thanks to our capital and liquidity, we have the capacity to lend. It's been the case that there's been a lack of demand rather than a lack of supply up until now."
Economist John Simpson said: "The bank is well placed to extend its lending, since it has attracted an increase in [gross] deposits by customers of 9%, or £450m, and now has funds that could be used to lend even more to local businesses and house owners."
Mr Mallon said he did not think the bank faced unfair competition from the new proliferation of funds, such as the Invest Growth Fund from Invest NI. "I don't think they are displacing lending by debt but they are bridging a gap in equity. Maybe in the past there has been too much reliance on overdraft finance and a cultural reluctance to let equity go out of the family [in family businesses]."
And he said cutting branch numbers from the present level of 53 in Northern Ireland was "an inevitability," thanks to a growth in digital channels, with around two million log-ins for the bank every month. "Any bank which is saying it's not going to reduce branches is kidding themselves," he added.
Great start, but there's still a long way to go
By John R Wright
It is heartening to see Northern Ireland's leading bank return to the black, albeit rather modestly.
It's very good to see bad debt charges reducing substantially as this is a decent indicator of the bank's focus on risk in the last few years, combined with a slight improvement in the Northern Ireland economy.
I note that business lending has risen. However, Danske – along with the other banks in the province – has some distance to go to repair the industry's image after five years of recession and burgeoning bad debts. This will take time.
The challenge for Danske – as with other banks – is to rebuild the income line. While cost reduction programmes are always necessary, one wonders if it will be easy to strike the right balance given the sharply reduced 'footprint' – notwithstanding the migration of clients to internet banking. As a user of their online banking, I can confirm it is an excellent product.
The cost income ratio [efficiency ratio] of 71% is too high and it will take sustained effort to bring this into line with the bank's historic levels.
It is interesting to reflect that the Northern Bank's profit back 20 years or so was almost £62m from 107 branches.
There's still a long way to go.
John R Wright was chief executive of Northern Bank from 1993 to 1997. He is a former chief executive of Gulf Bank in Kuwait, and of Clydesdale and Yorkshire Banks
Road to profitability not an easy one
By David Elliott
Danske Bank's Northern Ireland operations have followed a profitable route, paved by its Danish parent company.
The group as a whole saw pre-tax profits jump over 50% in 2013 to €1.5bn (£1.2bn), helped in no small part by the recovery for the business here and in the Republic.
A sharp fall in impairments – money set aside to protect against bad debts – was also a big help, and a factor which indicates a healthier situation in the markets which the bank operates in.
Still, chief executive, Thomas F Borgen, isn't happy just yet.
"We still have a way to go to realise the full potential of Danske Bank, but we are confident that we are moving in the right direction," he said in yesterday's results.
Certainly, the road to profitability hasn't been easy for the bank on the island of Ireland. It's arm in the Republic announced last autumn it wouldn't be servicing personal accounts, to instead focus on corporate and so-called institutional lending.
Such a radical overhaul hasn't taken place in Northern Ireland.
With a bigger pot of deposits, its now in a better position to increase lending, something banks, by their very nature, are designed to do.