BNI0011

Written evidence submitted by Danske Bank

1. Background on Danske Bank

In 2005 the Danish-based Danske Bank Group acquired Northern Bank from National Australia Bank. In November 2012, in a move replicated across all Group brands, Northern Bank was rebranded and now trades as Danske Bank.

Danske Bank retains the sound lending principles applied by Northern Bank throughout its 200 year history. Customers benefit from the Bank’s local knowledge and track record, combined with the investment, technology and capability of a leading European bank. Danske Bank in Northern Ireland (the Bank) brings together the heritage of its past with a progressive approach to the future of banking.

The Bank has emerged from the most difficult years of the financial crisis with strong capital and liquidity ratios. The Bank’s improving results throughout recent quarters demonstrate the organisation’s ability to steer a steady course through the financial crisis, emerging in a strong position from which to support the future growth of the Bank and its customers.

2. Governance/structure

While trading as Danske Bank the separate legal and regulatory status of Northern Bank Limited is maintained. The Bank is subject to the regulatory control of the UK financial services regime – the PRA and the FCA.

Danske Bank has a local Executive Committee responsible for operations in Northern Ireland and it is also governed by a Board of Directors, including several UK based Non Executive Directors.

Danske Bank Northern Ireland Structure:

1. Market Share

Historically the four main banks operating in Northern Ireland were Northern Bank, Ulster Bank, First Trust (AIB) and Bank of Ireland, with building societies from Great Britain operating primarily in the personal mortgage and savings market.

Over recent decades, the competitive landscape in Northern Ireland has changed significantly with the entrance of new banking players from Great Britain, including the consolidation and demutualisation of building societies. Offering the same products to customers in this market as elsewhere in the UK, some of these banks now gain a higher proportion of new accounts opened each year. The volume of business they are acquiring highlights their steady penetration of the local market, and a healthy level of competition.

Despite the arrival of these new entrants, Danske Bank has competed strongly to increase market share.

Business Banking

Source: PwC 2012 NI Business Banking Tracker; (Question asked: With which Financial Services Institution does your company hold its main business operating account?)

Danske Bank currently holds 33% of the business current account market. The four main banks in Northern Ireland today account for 91% of the stock of the business current account market and 59% of the share of new accounts opened in the past five years.

Personal Banking - current accounts & mortgages

The personal banking market is even more diversified than the business banking market.

Source: IPSOS MORI MFS First Half 2013.

Note: The Mortgage share figure does not total 100%. The 7% gap reflects those who did not respond or responded ‘don’t know’.

Danske Bank holds 20% of the personal current account market with the four main banks holding 66% of the overall stock of current accounts. Highlighting the significant market gains by other banks, less than half (45%) of the share of new current accounts today are opened in the four main banks, with Santander now in the top four for share of all current accounts.

Source: Ipsos MORI MFS NI Quarter 2 2013

Personal Banking – mortgage accounts

While Danske Bank holds a 7% share of the mortgage market, its share of mortgages taken out in the past two years has increased to 14% reflecting the Bank’s continued focus on the mortgage market and an ongoing commitment and appetite to lend.

Source: Ipsos MORI MFS NI Quarter 2 2013

2. Access to Finance

Danske Bank has a strong capital and liquidity position, maintained throughout the financial crisis. The Bank also maintains an appetite to lend and to support long term viable businesses.

• Availability of capital –Danske Bank has a solvency ratio of 21.5% and a Tier 1 capital ratio of 14.5%

• Availability of funding - a strong liquidity position with an overall deposit to loan ratio well above 100%

• Market Share – the Bank’s market share has grown over recent years, reflecting its attractiveness in the market, and appetite to acquire new business.

3. Lending volumes and approval rates

Business lending:

Danske Bank has continued to provide access to credit during the years of the economic downturn. The Bank’s approach to lending continues to focus on analysis of the integrity of a customer’s underlying cashflow and their ability to repay loan commitments.

(a)   Total Danske Bank business lending applications

Current business lending approval rates (year to date) remain high at 95%, with the number and volume of approvals remaining broadly consistent with the previous year.

(b)  New/ Increased business lending applications

Danske Bank has also continued to support applications for new or increased business lending. Since the start of 2012 approximately 25,000 applications for new or increased lending were received, and 95% of these were approved, totalling almost £2 billion.

Personal lending:

Danske Bank has provided £1.7 billion in mortgages to personal customers and has approved new mortgage lending of over £1 billion since 2010. Since 2010, the Bank has promoted its mortgage products extensively through a range of offers to support customers and stimulate the mortgage market – including offers for first time buyers, discounted fees and cash back, demonstrating the Bank’s appetite for mortgage lending.

4. Market context

Concerns have been expressed about the historic availability of finance for start-ups and expansions in Northern Ireland. A useful context and assessment of the market prior to the financial crisis can be found in the Ulster Society of Chartered Accountants 2001 Report “Financing for Growth”.

This report found that contrary to perception, Northern Ireland was a favourable place in which to borrow funds at competitive rates. “This conclusion has emerged from the Study’s extensive research in comparing interest rates in Northern Ireland with other international regions of the UK and the Republic of Ireland. Most SMEs in Northern Ireland borrow at rates which are at least as competitive as those offered by other regions – and in many cases at better rates.”

The report further concluded “it would appear that competition between the leading banks in Northern Ireland has resulted in a competitively priced market for funds throughout Northern Ireland, providing attractive borrowing terms for many SMEs.”

Source: Ulster Society of Chartered Accountants “Financing for Growth” 2001.

5. Start up and expansion funding

Danske Bank does not agree that bank finance for start up and expansion has played a lesser role in the Northern Ireland market when compared to the intervention of Government agencies.

Evidence from a range of recent reports suggests that access to finance has been both available and competitive in the local market.

The recent Economic Advisory Group report concluded, “Even allowing for differences in sampling methodologies, the evidence would suggest that more Northern Ireland SMEs use external finance than the UK average. This is particularly so for overdrafts, which is typically a working capital rather than a business growth product.”

In the report it is noted that SMEs in Northern Ireland had more access to cheaper finance than in Great Britain:

“At the peak of the ‘boom’ the borrowing norm in Northern Ireland was base +1% (or lower) as intense competition between banks for greater market share ensured. The rate is now more typically base +3% which is in line with lending rates for SMEs in Great Britain.”

Source: Economic Advisory Group report: Review of Access to Finance for NI Businesses; March 2013

Research conducted by the University of Ulster and the Federation of Small Businesses in 2013 also found that “Northern Ireland members with a loan/overdraft are paying lower interest rates compared to UK members.”

Source: FSB and University of Ulster “A Study of SME-Bank relationships in Northern Ireland”; March 2013

Access to finance is broader than simply bank lending and should be considered in its fullest context. In particular, the availability of private equity and venture capital has to date been modest in Northern Ireland. Danske Bank recognises that collaboration, rather than competition, needs to characterise the way forward to diversify financial structures for local businesses and to further develop the equity and venture capital market in Northern Ireland. The Bank has supported the annual Insider Media Ltd Business of Finance Conference for several years, exploring the potential for venture capital and other sources of finance in the local market.

6. Provision of regional lending data

The BBA (British Bankers Association) is working with the banks in Northern Ireland and with the Northern Ireland Assembly on production of the relevant lending data. This work includes the identification of the appropriate information to be gathered, which must be relevant to the local market dynamics while also respecting data privacy. Danske Bank has fully committed to contributing to the provision of enhanced information, including sectoral data for the region, and would encourage other local banks to do likewise.

7. National schemes supporting the availability of credit

(i)       Enterprise Finance Guarantee Scheme (EFGS)

Danske Bank is a participating lender in EFGS and was one of the first subscribers to the Scheme. Since 2009 eight loans with a total lending value of £1,618k have been drawn down.

Before considering an application under the Scheme, the Bank must be satisfied with the viability of the business proposal. An assessment of viability is based on the ability to repay the loan and the company’s cash flow quality, rather than on the security cover offered or available. The inclusion of a guarantee, such as this Scheme offers, does not inherently improve an assessment of the viability of the business.

The Scheme is one of a number of sources of support for SMEs and must be seen in the wider context of the support and funding Danske Bank already provides to customers. Given that there is an extra cost to the customer when supported under this Scheme, most customers tend to choose less expensive, conventional loans in preference to the EFGS.

The fact that the Scheme in itself does not make a lending proposal more viable for a lending institution, and that Danske can often meet customer’s needs at a lower cost using conventional loans, is crucial to understanding the modest uptake of the Scheme in this market. Danske Bank’s limited use of the EFGS reflects the Bank’s strength and success in conventional lending.

(ii)               Funding for Lending Scheme

Danske Bank is at the stage of securing approval for the Discount Window Facility – a prerequisite for participation in the Funding for Lending Scheme. At present there is not a need to draw on the Scheme as the current liquidity and funding position for Danske Bank remains very strong. The Bank continues to keep this position under active review.

(iii)            Mortgage schemes

Danske Bank notes that concerns have been raised regarding the potential for mortgage support schemes of this kind to create distortionary effects on the housing market. Danske Bank participates in the local Co-ownership Scheme and would assess the value of participation in proposed schemes with other key stakeholders including the Council of Mortgage Lenders and the Northern Ireland Executive.

8. Branch banking – the impact of changing customer trends

Branch closures have taken place over many decades in the local market. Over the past decade in particular, how customers use the branch network has changed significantly.

With 53 branches across Northern Ireland, branches remain an extremely important channel to Danske Bank. Much of the banking business previously conducted at the branch counter is now done through cash machines, online, smartphones, tablets and by telephone. These trends in turn shape the role of the branch and the decisions made regarding future investment in all bank channels.

The vast majority of the banks in Northern Ireland have been rationalising their branch network. Danske Bank has reduced its network gradually, in line with changing customer habits and across both urban and rural locations.

The percentage of customer activity by channel continues to change in favour of new ways to bank. Whilst the decline in branch use is continual and steady, the increase in online, mobile and tablet use is sharp and unprecedented.

Source: internal analysis

Consumer changes are necessitating ongoing reviews of the traditional branch network: how branches are used by both business and personal customers, other branches in the area, the cost of maintaining the branch given falling transaction volumes, what customers use the branch for and how sustainable a branch is for the longer term as more investment is directed into online, mobile and telephone channels to keep pace with these changes.

The financial crisis has had an impact on all business, including banks, and it is therefore only prudent for the Bank to review its cost base, alongside the changing customer trends. It would be wrong for any business to maintain costs that do not meet the evolving needs of its customers.

Analysis of transaction reductions over branch counters highlights similar trends across both urban and rural locations:

Source: internal analysis - percentage change 2009-2013

The service and support provided to consumers and to local businesses does not depend upon the number and location of branches. Danske Bank is able to offer banking services that fit into busy consumer lifestyles or the demands of running a business through the following options, services and programmes:

• a strong branch network and the largest number of branches open all day on a Saturday in the local market (22);
• enhanced services at over 400 Post Office branches in Northern Ireland for personal and business customers 6 days a week. Through this service, Danske Bank customers can check their account balance, withdraw cash, and lodge cash and cheques;
• a central, locally-based, customer team available on the phone 7 days per week (8am-8pm Monday-Friday, 9am-4.30pm Saturday & Sunday);
• automated 24 hour telephone banking;
• mobile and tablet banking apps (personal and business);
• SMS text alerts;
• dedicated regional finance centres supporting the needs of business customers;
• a team of 39 dedicated locally based agri banking managers, assistants and advisors who manage and support valued and longstanding relationships with farming and agri business communities;
• a dedicated business banking team is available on the phone from 8am-8pm Monday-Friday and 9am – 1pm Saturday to support smaller business customers;
• regional events are held for small business customers on how to make the best use of modern banking channels;
• a partnership with Age NI supporting older customers through a Step by Step guide to becoming confident in using modern ways to bank

In addition to using the branch network, the full range of ways to bank is summarised below:

Prior to a branch closing, customer support sessions are offered over two to three weeks, for two to three days per week. These sessions provide dedicated time, outside of normal banking hours (typically late afternoon or early evening), to discuss the individual banking needs of those customers who would welcome the additional support regarding their future banking options.

9. Customer satisfaction

In the annual PwC survey of business banking conducted in late 2012, Danske Bank was ranked first of the four main local banks (Danske Bank, Bank of Ireland, First Trust and Ulster Bank) across a range of ten customer satisfaction performance indicators.

For the past three years, Northern Ireland’s business community has voted Danske Bank as ‘Corporate Banking Team of the Year’, reflecting the support the team provides to local businesses and the value it adds through relationship management, local expertise and its appetite and capacity for business.

Personal customer satisfaction levels are among the highest of the main banks operating in the market place.

Source: PwC 2012 Business Banking Tracker, Ipsos MORI MFS Quarter 2 2013 (personal banking)

Danske Bank also tracks customer satisfaction specifically in relation to access to banking channels and services in managing their finances:

(a)   Branch network by region:

Customers are asked if the branch network meets their requirements. Danske Bank achieved an average score of 8.0 out of 10 compared to an overall competitor score of 7.8. Across regions, Danske Bank achieved robust average scores out of 10 as follows:

(b)   Online banking by region:

Customers were asked about their satisfaction with online banking. Danske Bank achieved an average score of 8.6, consistent with the competitor average:

(c)   Branch banking by age:

Customers were asked about their satisfaction with the branch network, with Danske Bank achieving an average score of 8.0 out of 10 compared to an overall competitor score of 7.8.

(d)     Online banking by age:

Customers were asked about their satisfaction with online banking and Danske Bank achieved an overall score consistent with the competitor average score.

(e)   Mobile Banking:

Customers were also asked about their satisfaction with mobile banking. Danske Bank achieved an overall average score of 9.0 out of 10, compared to a competitor average of 8.4 out of 10. There is no regional or age profile breakdown of this category.

Source: Danske Bank Group customer satisfaction survey June 2013

Conclusion

The strength of Danske Bank Group, alongside local senior management, ensures that Danske Bank in Northern Ireland is a progressive bank that continues to stay close to both its existing and new customers.

Despite the recent financial crisis, Danske Bank is in a sound, strong position in a competitive market, maintaining customer satisfaction and expanding services through the most challenging times for consumers, businesses and the banking industry.

The combination of available capital, expertise, services, relationships and technology enables Danske Bank to support both personal and business financial needs and so play a part in local economic recovery.

For the Bank and for customers, change is inevitable. Danske Bank’s commitment is to manage that change at the right pace, to extend customer choice and to build confidence with those choices.

Danske Bank continues to invest both financial and human resources in meeting evolving customer expectations, financial needs and to encourage and support those for whom change has a greater impact.

Customers can be assured that Danske Bank will continue to support customers in Northern Ireland, while building a sustainable business that is robust, responsive and fit for the future of banking. 

September 2013

1