Strong growth in business volumes and a sharp reduction in bad debt provisions helped National Irish Bank (NIB) report a 19 per cent rise in profits to £25.5 million for the year to end September.
NIB chief operating officer Mr Philip Halpin said the results reflected the successful implementation of "key strategic initiatives". These included the segmentation of the bank's customer base between business and personal markets.
In its drive to increase its share of the business market NIB has set up five specialist business branches, or centres, and introduced mobile and branch-based dedicated teams for business customers. Last year it set up 24hour telephone banking. The results for the year to end September show good growth in lending and in deposits as well as strong growth in non-interest income. But there was further shrinkage in the banks net interest margin - profits on core lending and deposit activity. The margin fell by half of a percentage point to 3.74 per cent.
In addition to strong competition in the market NIB's margins were reduced by the payment of dividends to its parent, National Australia Bank (NAB). NIB paid a dividend of £12 million to NAB for 1996/97 after £36 million for 1995/96. Their replacement with funds borrowed on the market and customer deposits increased NIB's interest costs, thereby reducing its net interest margin.
The payment of dividends to NAB helped NIB's return in equity. It rose to 22 per cent from 15 per cent in 1995/96. In its core business the greatest pressure on margins came in business and mortgage lending and in high interest savings.
Costs rose by 9 per cent to £43.2 million. Mr Halpin said the rise reflected pay increases to staff, significant investment in 24-hour banking, the addition of eight new automated teller machine (ATM) sites, branch upgrading and refurbishment and the new business banking centre in Galway. The drop in the bad debt provisions to £0.7 million from £2.4 million reflected improved asset quality and recoveries of loans previously written off in a strong economy. It is the lowest bad debt charge since the bank was set up in 1988. Mr Halpin declined to disclose the level of debt recoveries though he said "figures for recoveries are lower than last year". When the bad debt charge is stripped out underlying profits rose by 10 per cent. Loan quality improved with the level of non-performing loans down to 0.8 per cent of average loans from 5 per cent five years ago and 1.6 per cent last year, he said.
Overall lending rose by 18 per cent to £1,062 million. Business lending was 23 per cent ahead to £489 million, while mortgage lending was up 16 per cent. Personal loans rose by 16 per cent. Credit card business produced a strong increase in income.
Deposits rose by 17 per cent to £1.2 billion despite low interest rate environment and strong competition for saver funds.
Mr Halpin said there was a strong rise in current account balances which were 17 per cent ahead mainly on growth in business banking. Business customers accounted for 44 per cent of total deposits.
NIB's net interest income was 6 per cent higher at £49.8 million. Non-interest income - including commission on insurance business (up 26 per cent) and fees from the retail division - rose by 18 per cent to £19.6 million, pushing the ratio of other income to total income up from 26 per cent to 28 per cent. Profits after tax rose by 23 per cent to £16.2 million while NIB's return on average assets improved to 1.15 per cent from 1.12 per cent.
