The global economic crisis could have a massive impact on the banking market in Northern Ireland. While the Big Four – Ulster Bank, Bank of Ireland, First Trust and Northern Bank – may all survive in Northern Ireland, it is far from certain that they will remain the ‘Big Four’ over the coming years.
Last week’s results from the Bank of Ireland underline the plight of many of the biggest banks. It lost €979m (£877m) in the six months to the end of September. Not only this, but the European Commission is considering what conditions to impose as a result of Irish state support. This could lead to restrictions on its activities in Northern Ireland.
Allied Irish, which owns First Trust, will soon submit its plans to the European Commission for approval of state support. Neither AIB nor Bank of Ireland is likely to voluntarily reduce their engagement in Northern Ireland. Yet much more profound conditions have already been imposed by European Commissioner Neelie Kroes on banks in Great Britain.
While there may not be any forced divestments of interests in Northern Ireland, banking practices here are already changing. Halifax had begun to aggressively enter the personal banking market in Northern Ireland and its sister Bank of Scotland had built-up a large operation in the Republic. But this was prior to HBOS being taken over by the Lloyds Group. No one from the group was available to comment on future plans for trading in Ireland, but these will almost certainly be less ambitious than had been intended a year ago.
We have already seen the Bank of Ireland change its approach to banking in Northern Ireland. It has become especially competitive in the savings market, as might be expected given its situation. Northern Bank – whose owner, Danske, is less damaged than many other banks – is increasingly competitive in mortgage lending and hopes, generally, to exploit the problems of its competitors by growing market share across its product range.
HSBC has also adjusted its strategy in Northern Ireland in recent months. Having opened new branches here, it is now moving away from competing for new personal banking customers.
This, though, has less to do with the banking crisis than with the long-running legal action challenging banks’ right to impose penalty charges on unauthorised overdrafts. Banks are becoming pessimistic about their chances of success and preparing for the resulting big loss in their current account income. They are likely to respond by charging personal and small business customers for basic banking services, except where accountholders meet minimum income or average balance thresholds.
HSBC comes close to admitting this when explaining its future strategy for Northern Ireland. “We are keen to grow the Premier and Wealth businesses,” says an HSBC spokesman. “We are always trying to recruit as many Premier customers as possible. It’s a free service, but you have to qualify for it. It’s about attracting as many customers that you can earn a profit from. But we don’t have the capacity to take large numbers of customers from other banks.”
The mortgage market is slightly different, where HSBC is now regularly near the top of the best buy tables. HSBC says this is because if does not use intermediaries in selling mortgages, so can be very competitive. It is seeking to increase its share of mortgage lending in Northern Ireland – subject to customers’ credit status. “We are lending to good creditworthy borrowers,” says HSBC’s spokesman.
Spanish banking giant Santander – owners of the Abbey, Alliance & Leicester and Bradford & Bingley brands – is also keen to increase market share in Northern Ireland. “We are trying to challenge the clearing banks for current accounts….. in Northern Ireland as well as Britain,” says a spokesman. Santander is currently merging the three branch networks, which will leave them with an integrated single brand network of 42 branches – a strong position from which to challenge in Northern Ireland.
Big Four banks are not giving in easily to potentially increased competition. RBS regards Ulster Bank as a core part of its business, is clearly happy that the European Commission is not seeking its disposal and is determined to maintain Ulster’s strong position in the market here.
But the various pressures on Northern Ireland’s Big Four mean they are likely to introduce new charging structures for personal and business current accounts, to generate more income. But in doing so they will face strong competition from new players. Thiese include HSBC and Abbey, but also the supermarkets that are entering the banking market – Tesco, Sainsbury’s and Marks & Spencer.
There is now widespread speculation that Tesco and Virgin Money could be interested in buying the bank chains being disposed of by RBS and Lloyds Group – and Northern Rock (which has just one branch in Northern Ireland). The impact of these acquisitions over the next four years on Northern Ireland could be substantial and make the banking market here much more competitive.
Eventually, Northern Ireland may be no longer be talking about the Big Four banks, but instead the Big Six or even Big Seven.
Royal Bank of Scotland – owners of Ulster Bank – and the Lloyds Banking Group have been told by the European Commission to sell many of their assets as a condition for state aid. RBS must sell its insurance businesses, its RBS bank branches in England and Wales; the NatWest branches in Scotland; and much of its service for small and medium sized enterprises.
Lloyds must sell its Cheltenham & Gloucester network and 436 Lloyds TSB branches, which will be rebranded as TSB. A Lloyds’ spokesman says: “[The] announcement doesn’t touch on the island of Ireland at all.”