Ulster Bank chairman Sir George Quigley concedes that it would be difficult for banks to avoid being profitable in the prevailing economic conditions in Ireland. But it is an environment where financial institutions could become complacent and could thereby lose out in the medium term.
At Ulster Bank there is no sign of complacency as the bank focuses on increasing organic growth as well as "sensible" growth by acquisition.
In an industry where competition and consolidation are expected to gather pace and more non-traditional players expected to enter the market, banks will need to be well focused, efficient and innovative to maintain profit growth. In 1988 Ulster took a number of steps to improve performance. Against the trend in the industry it improved its net interest margins by changing the mix of funding from market funds to funds from customers - current and deposit accounts. It improved its cost income ratio to 56.2 per cent from 57.7 per cent. And it says it has increased its share of lending to small and medium sized enterprises.
Profit growth reflected these factors. The 16 per cent pre-tax profit increase in Irish pound terms contains a strong performance in the Republic but weaker growth in Northern Ireland depressed profit growth. In Northern Ireland rising interest rates in the first half of the year led to problems in the agribusiness and exporting sectors and an increase in bad debt charges for the bank.
More focus on retail business brought up its contribution up to 70 per cent of profits from 63 per cent four years ago. Ulster is determined to continue organic growth in the Republic and intends to invest heavily to ensure it. As well as developing new products based on research into consumer needs, Ulster intends to build on its NCB and Cunningham Coates stockbroking acquisitions. There will be more cross selling to stockbroking customers and joint products, while the stockbrokers can use bank branches for distribution. In addition funds management is an area where Ulster plans to grow its market share - funds under management rise by 29 per cent in 1998 to £4 billion sterling.
In Northern Ireland there are opportunities from expected infrastructural investment and development potential of key business sectors. For example tourism currently accounts for only 2 per cent Gross Domestic Product compared with 6 per cent in the Republic. And with falling interest rates the business environment is improving. Ulster is interested in acquisitions but only on a selective basis. As a strong contributor to Nat West, Ulster expects support from its parent for expansion - Ulster's dividend to NatWest doubled to £56 million for 1998. But Ulster will only pay a "sensible" price for any acquisition.
Referring to ICC Bank which could be a good fit with Ulster's SME operations, chief executive Mr Martin Wilson said that they will look at tender on basis of how it would fit with Ulster. But he warned that the bank would not be interested if there were conditions attached which were "unacceptable" to Ulster. These conditions would include anything which prevented Ulster extracting value from the acquisition or restricted its control.
