Company Snapshot: Northern Bank
Northern Bank has most of its business in Northern Ireland and is a wholly owned subsidiary of Danske Bank which is headquartered in Denmark.
The ownership structure has been important in the last three years as each of the banks, in differing ways, has rebalanced and refinanced their business to cope with the credit crisis.
In each of the last two years Northern Bank has 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.
The bank has been trading in unusually difficult circumstances. Despite the developing recession, the bank increased the value of customer deposits by 10% in 2010. The impact of the extra deposits was offset by the lower levels of net interest earned by the bank and the fall in the value of loans outstanding.
Net interest income earned has fallen in the last three years to £126m in 2010; net earnings of just over 2% on deposits. Operating costs were 75% of net income in 2010 compared to 67% in 2008.
Prudent banking policies have meant that the bank has been aiming to reduce the level of lending as a proportion of its deposit base. Consequently, although deposits have increased, the value of loans and advances to customers has been falling.
Lending to customers, after deducting provisions for bad debt, fell by £316m in 2009 and by a further £301m in 2010. Of this two-year reduction of £617m, £45m came from reduced lending on property and £145m in reduced lending to the construction industry.
Annual deductions for bad and doubtful debt rose from £57m in 2008 to £163m in 2009 before falling to (the still considerable) £139m in 2010.