Northern Ireland's banks should step up role in economic recovery

16 March 2015

In a Report published today, the Northern Ireland Affairs Committee says banks in Northern Ireland need to do more to aid economic recovery, and questions whether Northern Ireland’s banks are, in fact, actually a block to recovery, rather than aiding it.  The Committee says that while more competition in the banking sector in Northern Ireland would be welcome, the better way forward is for existing banks to improve their services to their customers without, however, a return to the aggressive lending practices which contributed to the current situation.

A robust banking system is crucial to any economy. As the Republic of Ireland’s banks were left highly exposed to bad debts during the 2007–08 financial crisis, so the economy across the island of Ireland was left to deal with the consequences. However, banks have an equally central role in securing an economic recovery.

The Committee concludes that:

  • Some of Northern Ireland’s banks have shown relatively little concern for their customers by pursuing plans to close local branches. While some of these closures are due to reduced customer activity in branch and greater use of internet banking, it is not always appropriate for rural areas
  • It is clear that many banks’ IT systems are not fit for purpose: banks should use their increasing profits to make greater investment in their IT systems
  • Banks have appeared reluctant to lend other than to the most financially robust customers. Recent statistics show a slight improvement in borrowing by SMEs during 2014, but the Committee believes that the more conservative lending criteria have dissuaded many businesses from pursuing opportunities that would require bank financing
  • Transparency in the banking sector is key to ensuring an economic recovery and it is important that banks provide lending data to public officials so that growth can be effectively monitored. Significant progress has been made in this area over recent years, but the Committee notes that Santander has not provided data to the BBA and there continue to be differences between banks on the definition of key terms, such as what qualifies as "new" lending
  • There is cause for continued concern about the property market and the recent sale of NAMA and Ulster Bank property loan books, but there are clear, positive signs of signs of recovery in the economy which the banks need to capitalise on
  • The Northern Ireland Executive should keep a close eye on the relationship between Cerberus, the partial successor to NAMA, and businesses in Northern Ireland

The Committee says it was most unsatisfactory that Ulster Bank was not given the opportunity to comment on the "disturbing" findings of the Tomlinson Report, however, the Bank’s refusal to respond to the Spotlight allegations could not fail to give the impression that it had something to hide.

Chair's comments

Laurence Roberston MP, Chair of the Committee, said:

"From the reckless high-risk attitude of many banks pre-financial crisis, the pendulum appears to have swung too far back in the opposite direction. Over the past year, the Northern Ireland economy has shown very welcome signs of recovery, with many new jobs recently being announced and the banks themselves showing a return to profitability. The banks needs to build on this. It is regrettable that banks such as FTB and Danske, have chosen not to participate in HM Government’s Funding for Lending Scheme, thereby potentially denying Northern Ireland further capacity for growth.

The banks have assured us they are "open for business": it is essential that they now put their money where their mouth is to help small businesses play their part in Northern Ireland’s economic recovery. We also believe that at the level of customer service and IT services need to improve considerably for banks themselves to really play their part."

Further information

Since the report's release the Chair has received a letter from the British Bankers' Association.

Image: iStockphoto

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