THE protracted delay in finalising a decision on the future ownership of the TSB bank is of concern to the trustees, according to chairman Dr Dermot Whelan.
In a competitive banking environment where significant capital investment will be needed to keep up with rapidly changing technology, the trustees have every reason to be anxious about the future.
TSB is a relatively small bank with total assets of £1.4 billion and 77 branches. It is a profitable operation with a return on assets of 0.91 per cent in the year to end October 1996. It has shown good growth in lending in recent years and expected to bring its loan book to the £1 billion level by the year 2000.
However it is facing significant challenges. The bank has just moved on to the full rate of corporation tax. Last year it paid tax at the full rate for seven months of the year. The effect was to reduce after tax profits to £12.8 million from £13.8 million.
This year it will pay the full tax rate for 12 months, further reducing the surplus which funds future investment.
Profit margins on core banking business are under pressure. TSB has done well to maintain its net interest margin at 4.29 per cent. A number of factors helped maintain this profit from lending and funding activities including the switching of funds held at historically low rates with the Minister for Finance into higher earning customer loans and a good increase in low cost current accounts. However, this cushion from switching activities is dwindling with only about 15 per cent of funds now with the Minister for Finance.
In a benign economic environment its bad debt charge is not out of line. But if lending experience deteriorated it would have to raise bad debt provisions, paring profits. TSB's operating costs are high. While the bank is in a development stage and is a retail operation, it will have to achieve a mix of higher in"come and lower costs over time.
TSB is currently examining a number of possible options to increase access points" for customers and to enhance income. These include telephone banking which Mr Lorton hopes to offer his customers by 1988.
