Buoyant lending lifts Ulster Bank half-yearly profits to record £90m

Strong growth in lending and in non-treasury markets operations have cancelled out a fall in interest margins and treasury profits at Ulster Bank, with the result that the Natwest subsidiary has reported record profits of £77 million sterling (£90 million) for the half-year to the end of June, a rise of 10 per cent.

As a UK-registered company and a subsidiary of Natwest, Ulster reports its accounts in sterling and, as a result, has been adversely influenced by the strength of the British currency in the first half when translating profits from the Republic. If exchange rates had remained constant, underlying profits would have risen by 18 per cent or £12 million.

While the first half of the year produced record profits, the intense competition in the Irish market meant that Ulster's net interest margins fell from 3.52 per cent to 3.45 per cent. Lending in the retail side of the business, however, grew 6 per cent to £3.6 billion, with most of this lending growth coming from the Republic, where the rise was 14 per cent.

Ulster's regional director, Mr Richie Boucher, said he expects further contraction in interest margins, but this will be more than balanced by loan growth and increases in Ulster's market share.

Overall, the retail side of the business produced a 20 per cent increase in profits to £48 million, with increases in all sectors of the business - branch banking, Lombard & Ulster, mortgages, credit cards and insurance products.

Ulster Bank Markets, which takes in treasury, stockbroking, fund management and corporate banking, had mixed fortunes, with lower profits in treasury being only partly offset by profit growth in the stockbroking and fund management business.

Overall, profits at Ulster Bank Markets fell by £1 million to £29 million, although there would have been a £1 million rise in profits if exchange rates had been the same as in the first half 1997. Corporate lending rose by 17 per cent to just over £1.5 billion.

Net interest income overall rose from £119 million to £124 million, fees and commissions from £36 million to £44 million, although dealing profits fell from £24 million to £20 million, reflecting the downturn in the treasury business. Total operating profits rose from £181 million to £189 million.

Although costs were up 8 per cent, the growth in income meant that Ulster was able to reduce its cost-income ratio from 58 per cent to 55.6 per cent. The reduction in the ratio is ahead of target and reflects the growth in income, said Mr Boucher.

He indicated that Ulster will be an interested party when ICC Bank is offered for sale. "The SME sector is very attractive for us, and we have market share of about 15 per cent there. We've had a lot of organic growth but are interested in buying a complementary business. ICC is potentially a complementary business," he added.

On the TSB, where Ulster has already publicly expressed an interest, Mr Boucher said: "We still don't know whether we'll be given an opportunity to bid. It's an attractive business and has outlets where we don't have them."

While he would not comment on the Government's current consideration of the future of TSB and ACCBank, it seems that most of the potential bidders now accept that the likely outcome is that the TSB will be merged with ACC and floated on the market at a later date, and that a straight sale of the TSB is unlikely.