Sales culture at branch level is proving highly beneficial

DEVELOPING a sales culture in its Irish operations is starting to prove highly beneficial for the AIB group.

In 1996 group non-interest income - income from products and services other than the core banking operations of lending and raising funds to lend customers - increased by 16.2 per cent. This compared with a 5.1 per cent rise in net interest income in competitive markets where profits on lending and fundraising activities are under pressure.

Non-interest income accounted for 35.8 per cent of total operating income, up from 33.5 per cent in 1995. The increase reflected a move which started about three years ago to drive up the incomegenerating capacity of its branch operation. AIB's aim is to get its non-interest income up to the 45 per cent level generated in some UK banks.

By selling life assurance, leasing and other products through its extensive branch network, AIB aims to expand its non-interest income. The move is aligned to its philosophy on costs and its cost-income ratio, currently at 62 per cent. AIB's policy is to raise income rather than cut costs.

Cost cutting can damage "the fabric of the organisation", the chief executive, Mr Tom Mulcahy said. "We do not want to drive the costs issue too hard and damage the business. We have a balanced focus." The way forward is to develop a sales culture, to maximise the potential of the branch network for product distribution Through a mixture of income growth and cost control, AIB is targeting a cost-income ratio of 60 per cent in 1998/99.

AIB's focus is important in an environment where banks' net interest margins - the profit on core lending and raising funds - are under pressure and where demand for loans is expected to slow from current high levels in the medium term.

The 1996 results show good lending growth over a range of sectors and in all markets. With 98 per cent cover on non-performing loans and stricter lending criteria, the bank is in a good position to deal with any deterioration in economic conditions.

Its geographic spread, with 41 per cent of assets in Ireland, 36 per cent in the US and 23 per cent between the UK and the rest of the world, is a protection against swings in economic cycles. Its investment in Poland - a 36.3 per cent stake in WBK bank acquired for £50.7 million - has performed well and AIB can be expected to exercise its option to take a majority stake.

In the US the challenge this year acquisition of Dauphin and to integrate the bank with existing operations to achieve cost reductions and income growth.