Time to see how banks are helping economic recovery
Ten years ago some of the apparently most profitable businesses in Northern Ireland were the small group of high street banks and a slightly larger group of property developers. Now, in the later months of 2016, after those years of collapse of property prices, action by the banks to call in loans (or have them administered by Nama) and major rescue projects by the British and Irish governments, there are signs of a return to a new normality.
The experiences of property developers have been dramatic and, for some, ranged from 'riches to rags' followed by 'rags to new riches' as property assets have been reassembled at new lower but normal baseline prices.
The property market has been supported (if support is the right word) by asset sales, some of which have been indirectly funded by government action in support of the balance sheets of the lending banks.
Two features are reflected in the recovery of the banks and property prices.
First, some of the property developers (but not all) have restructured their assets and balance sheets with some unusual accounting applications so that profitable results and asset appreciation are emerging again.
Second, although the commercial banks have been rescued and supported, a return to profitable banking is now in evidence but with poorer profit margins, lower net interest earnings and a reduced enthusiasm for loans to support the private business sector.
The change in the nature and demand for bank lending support has complex implications for the regional economy.
In 2008-09, the banks in Northern Ireland (as also in the Republic) were over-lent. The scale of excess lending was not widely appreciated while it happened. Only in retrospect is the trend clear to people outside the banking sector.
However, for the professional bank decision makers, history is now writing a seriously critical commentary on what should have been more conservative prudential lending.
There is an interesting irony in the juxtapositioning of the way in which the larger banks have become some of the main commentators on the way in which the regional economy is growing (or not growing) where the banks are offering generic advice on business developments in contrast to the very limited analysis of the role of the banks themselves either from within the banking sector or from other commercial organisations.
The banks are critical facilitators of the commercial economy, but only very little is published and analysed of the financial flows through the local banks and the implications of these trends.
Only since late in 2013 have the banks agreed to publish basic information about their business here and then, quarter by quarter, this has been updated.
Regrettably, although the data could possibly be made available, no data for the years leading up to the property crash and then for the unfolding events, has been published.
The information available for the last three years is revealing.
From the fourth quarter of 2013 to the fourth quarter of 2015 (the latest available) the level of deposits held by banks in Northern Ireland has barely changed.
The changing levels of deposits and lending point to a major fall in business loans and a build-up of banking reserves. The banks should now be looking for new borrowers.
Whether the fall in lending is a lack of demand from customers (which is a pessimistic conclusion about the wider economy) or unwillingness by the banks to take lending risks (which could also have a pessimistic interpretation), the banking sector is still lacking firm evidence of support for local economic recovery.
Time now for a critical review of what the local banks are doing.