Official Report: Minutes of Evidence

The Chairperson (Mr O'Toole): I welcome Daniel Wallace, who is in charge of customer care at Barclays Bank; Mark Crimmins, Ulster Bank's regional managing director; Brian Mulligan, Santander's customer interactions regional manager — this is like being at Wimbledon and looking back and forward — George Higginson, managing director with Bank of Ireland; Richard Caldwell, executive director with Danske Bank; Brian Gillan, head of NI retail at Allied Irish Banks (AIB); Eric Leenders, managing director in charge of retail finance at UK Finance (UKF); and Paul Leonard, non-executive director representing Northern Ireland and UK Finance's Northern Ireland committee.

Thank you all for coming to participate in this evidence session; it is most helpful. I am not sure that there is a precedent for this. We have undertaken the inquiry in order to establish some facts and information on how financial services are operating in Northern Ireland. We had a general sense that there is a lacuna in the public discourse and policy landscape of financial services in Northern Ireland. We are, obviously, a part of the broader UK financial services market, but we have a distinct set of circumstances in Northern Ireland because of features such as our increased rurality and the high share of the market of a traditional cohort of local or all-island banks. We are also in a slightly anomalous position vis-à-vis the broader UK banking market. There is, however, a broader picture to be understood.

For that reason, we wanted to elicit some understanding and carry out some public scrutiny, but, hopefully, we will also produce some observations that will be useful for policy. We welcome all of your participation here. I thank our Committee team, who have got you all here today and accommodated you, in a literal sense. I ask members to be as concise as they can in their questions so that we can get around as many people as possible. I appreciate that your time is valuable, particularly when global economic turmoil is happening; people in your position have lots of other things to be doing. I will invite Eric to make some opening remarks rather than ask everybody to do that. That is not a slight on anybody else or an indication that we do not wish to hear from you. I think that we will unpack a lot of what we want to achieve via questions. Members, as always, indicate to me or to the Clerk should you wish to ask a question. Eric, will you make some opening remarks for us, please?

Mr Eric Leenders (UK Finance): Thank you, Chair. On behalf of our Northern Ireland committee, we very much welcome the opportunity to add some colour and insight to the questions and perspectives that you will, doubtlessly, bring to the conversation this afternoon. I very much encourage — this is a point that you raised — alignment with the rest of the UK on the growth and inclusion agenda. As you would imagine, in preparing for this session, I listened to various other evidence sessions, and it is very clear from that evidence that there is significant commonality. However, as we will see from this conversation, I suspect that the issue is more about priority than the substance of the issues.

The wider benefits of aligning with the UK are that it makes the distribution of products and services commercially much more efficient for providers because of scale. Equally, it encourages competition in the marketplace, because there is a common way of distributing a product and service. That competition, which my colleague Paul will perhaps expand on in a moment, has opened the personal current account market, the mortgage market and others. That shows that there has been significant benefit for the community in Northern Ireland.

The Northern Ireland economy contains some cornerstones that are very supportive of a banking environment. The employment rate in Northern Ireland relative to the UK is a significant driver of financial difficulty. I will frame that in a slightly different way: a low employment rate is very beneficial for communities, and a higher unemployment rate can create financial difficulty as the income shock consequence flows through. In the headline numbers across commercial finance and retail finance, we see a greater acceptance of loan applications in Northern Ireland. We certainly see similar patterns in retail banking across savings, where savings are increasing in Northern Ireland and the UK generally. Consumer credit is reducing, so personal loans in Northern Ireland and the UK are reducing somewhat.

As you mentioned, Chair, there are some very live uncertainties just now. I think that all my colleagues around the table will be thinking about the consequence of tariff activity and specifically, perhaps, the ripple effect more than the tariffs themselves, not least because the tariffs are currently on goods, not banking services. It might be a little premature to try to explore that question in depth in this session, if I may say so.

I will now pass to Paul.

The Chairperson (Mr O'Toole): I should have said that Paul is also going to give us a brief introduction.

Mr Paul Leonard (UK Finance): I will try to bring the discussion back down to a more local level. I hope that people have had a chance to read and absorb the submission. One of its key points is that the market in Northern Ireland has changed dramatically over the past 10 to 15 years in three particular areas: how customers pay for goods and services; the number of different banks that are operating; and the choice that consumers have.

I will pick up on the point about the Big Four banks. They now have just over 50% of the current account market share. That is quite a shift from when I started my banking career. Another area is the channels that customers choose to use in order to bank.

Like any business, if banks are to remain competitive and fit for the future, they need to adjust their business models to reflect consumer behaviour changes. Demand from consumers for online services has transformed how we shop, how we book flights and hotels and even how we buy groceries and clothes. Banking is no different, and all the banks have had to react by investing in order to satisfy demand if they want to stay relevant to their customers.

The financial services sector in Northern Ireland is a critical stakeholder in the economy, employing over 20,000 people and supporting businesses and consumers. There are 115 branches, multiple contact centres, 1,800 ATMs and around 480 post offices in which people can do their banking. I am sure that we will talk about the hubs, of which there are six, or seven, if we include the one that is coming to Larne. Our submission outlines how, per head of population, Northern Ireland is comparatively well served by physical banking options. Banks support small to medium-sized enterprises with over £7 billion in gross lending, lend £23 billion to homeowners and keep safe deposits of about £24 billion. Vitally, however, they support the payment and cash infrastructure, which is the lifeblood of our economy and society.

Our submission outlines how the structure of the personal and business banking markets has changed over the past 10 to 15 years. Retail customers in particular have a much wider choice of providers, and the market is more dynamic and competitive than it has been at any other time. Independent studies from the British Business Bank (BBB) and BVA BRDC demonstrate that SMEs in Northern Ireland are equally or better served when it comes to borrowers having a high level of confidence in their success with applications and as a result of higher local approval rates.

A number of areas have featured in the Committee's inquiry. Like Eric, I have listened to the evidence sessions. The difficulties that charities have with opening and maintaining bank accounts, financial digital inclusion and financial education are challenges that face customers and society alike in Northern Ireland and GB. The industry recognises the challenges and is committed to working fully and collaboratively with other stakeholders to better address those areas. UK Finance and many of its members are actively involved in, for example, working with the charity regulators and the recently formed Financial Inclusion Commission (FIC), but we need to look at digital exclusion in its widest sense and at the vital role that all stakeholders, including the banking industry, have to play in helping with the digital transition and in allowing people who are not online at all to get online.

We tried to illustrate in our submission how the banking landscape has changed over the past decade. The submission describes how the industry has changed to adapt to changed consumer behaviour, describes the key role that the sector plays in supporting the economy and our community and demonstrates, with empirical data and independent surveys, that Northern Ireland is a well-served banking market.

Thank you for inviting us to share our perspectives. We will answer your questions as best we can.

The Chairperson (Mr O'Toole): Thank you, Paul and Eric, for your opening statements. Members, if you have not already indicated that you wish to ask a question, please do so.

I will go to you first, Mark, and then to you, Richard, because you two are in my eyeline, and then to the others who represent the traditional Big Four, because this is a genuinely interesting question that is directed at the Big Four. From the available statistics, which are in the UK Finance submission, it is clear that the share of the market for the traditionally dominant banking providers in Northern Ireland — Ulster Bank, Danske Bank, which was previously Northern Bank, AIB and the Bank of Ireland — is shrinking, certainly when it comes to their share of the current account market. Are the Big Four relaxed or neutral about that? Please keep your answers relatively concise.

Mr Mark Crimmins (Ulster Bank): Thank you for your question, Chair. The numbers that are quoted in the UKF submission resonate with us, because we experience the same in our business. Some of them are also a mirror image. Your question was whether that troubles us. Any loss of market share is troubling to the Big Four. The traditional banker set in Northern Ireland faces a challenge. We are trying to provide an all-encompassing sales and service model to corporates, SMEs and consumers in Northern Ireland. That requires a combination of having fixed physical infrastructure and competing with some of the new entrants on the best of digital. That is a challenge in itself. We have seen some of the so-called challenger banks accumulate some market share in the personal and SME spaces, so we have to deploy investments to defend against that. We also have to maintain and protect our physical infrastructure. We remain committed to a blended service proposition, but it is difficult to maintain our position.

The Chairperson (Mr O'Toole): It is interesting that, in a sense, you find that there is a degree of squeeze. There are providers such as Monzo — I have pulled that one out of the air — and then there are credit unions and building societies, from which we have just heard, that do not have commercial pressures, because they are mutually owned. Is that the kind of squeeze about which you are talking?

Mr Crimmins: Squeeze is the challenge. From an Ulster Bank/NatWest in Northern Ireland perspective, we are committed to the blended service model, but challengers are excellent in particular areas. They tend to take a bit of the market share in particular areas, so we have to compete with that.

The Chairperson (Mr O'Toole): Richard, I ask you the same question.

Mr Richard Caldwell (Danske Bank): We are absolutely not relaxed. That is the best way in which to put it. We think about the situation every day, and we take action to maintain our market share. From a consumer or customer point of view, the market is more competitive than it has ever been. You can see the difference in personal banking in particular: challenger banks such as Monzo and Starling Bank, which are digital only and have no physical footprint, have come into the market and have reached, I think, 7% or 8% of the market share. They are definitely growing, and we have to compete. We have to offer the services that the customers of today are looking for. There is an insatiable appetite for online banking, and online everything, so we have to provide those services in order to stay competitive and relevant. We are therefore absolutely not relaxed.

The business market is slightly different — there may not be the same level of competition, and the Big Four have more of the market share here — but personal banking is super competitive.

The Chairperson (Mr O'Toole): OK. I will ask George and Brian the same question about the Big Four being squeezed. You first, Brian, and then you, George.

Mr Brian Gillan (Allied Irish Bank): I will build on what others have said. We also operate a full service model across a multi-distribution channel. That includes branches, business centres, business banking, mortgages and the personal side. I agree with Richard that there are slight differences in the markets. The personal and mortgage markets are well reflected, but the business market tends to have a smaller but still very competitive number of players.

Mr George Higginson (Bank of Ireland): Ours is a similar story. We are a full-service bank. Business banking is a different story from personal banking. To focus on the personal bit, where the issue is greater, one of the biggest challenges, as Mark and Richard said, is that some of our competitors pick and choose where they play. They are not there to support customers all the time. The same customers therefore come to us for their more complex needs, which are difficult and costly to provide.

None of us should be relaxed about this. One of my fears is that it will become unsustainable to run a full-service bank. For example, among us, as the main pillar banks, we fund access to cash, open banking, cash management accounts (CMA) etc, but some of those other banks do not contribute to that. Our parent company has issues with that, but we are here to stay. We need to invest heavily in order to compete with the other banks, but we all have to worry.

The Chairperson (Mr O'Toole): Is there a concern that, by closing a branch network, which is happening — that is incontrovertible — you are losing one of the USPs that you have over the challengers? It is about the connection with the community and the fact that people can see the Bank of Ireland or the Ulster Bank on their local street and know that their dad, mum and grandparents bank there. There is that connection.

Once that connection is gone, however, you are kind of inviting them to say, "I might as well open an account with Monzo". That is not to criticise Monzo but to give an example. Is it not a concern that, by closing the branch network, you are almost accelerating the process?

Mr Higginson: Yes, it is. I can understand why, sitting here, you are saying that we just want to close all our branches. The truth, however, is as you just said: we do not want to close our branches. We see our branches as being a USP. They are where we deal with our vulnerable customers and help people with more complex needs. We also have to recognise, however, that a lot of customers want to do their basic transactions online and digitally and that we have to get better in order to be competitive. It is therefore about striking a balance between the two, and we have to find the right mix. The biggest concern from our shareholders — some of my colleagues may have had the same experience — is that the cost of our being in Northern Ireland is materially different from the cost of some of our competitors being here, because they do not contribute to the same things to which we are forced to contribute. That is a big issue.

The Chairperson (Mr O'Toole): I ask the same question of Mark, Richard or Brian. You are not compelled to answer, but, should you wish to, I will bring you in.

Mr Crimmins: I will come in on that, Chair. It is a challenge to compete on all fronts, but we are absolutely committed to the blended service model. We understand the importance of our branches and of our business managers, as boots on the ground, to our customers. We are committed to that as a service model. It is costly, but it is core to our proposition.

The Chairperson (Mr O'Toole): When you say that you are committed to that service model, however, that does not mean a commitment to not shutting branches.

Mr Crimmins: Our public commitment on branches is to maintain the current 25 branches until at least 2026. Beyond that, we will periodically reassess, but any change that is made to the network will be predominantly customer-led.

The Chairperson (Mr O'Toole): Eric, you wanted to come in on that point.

Mr Leenders: Yes, on two points, if I may. First, on George's point that a number of the incumbent brands have legal obligations, those obligations are to provide open banking, basic bank accounts and other commitments that their competitors do not necessarily have to provide. That contributes to the fixed-cost differential. On your point about consumers being attracted by branch presence, because we represent all the licensed deposit-taking brands, we see that, for a number of the more digitally orientated of them, self-selection tends to be done by younger cohorts. There are now probably 10 or 11 million Monzo customers who would not see the value per se in a bank branch. That plays to Mark's point about how an incumbent needs to be able to compete in a physical environment and a digital environment.

The Chairperson (Mr O'Toole): Yes. That emphasises the need for the brand to have resonance. I will ask one follow-up question about branch closures. I will go on to ask questions to your colleagues from Barclays and Santander, because they will have a distinct perspective. Ulster Bank is not a retail banking player in the Republic now, as its network there has been shut down. It is therefore legitimate to ask — this one is primarily for Brian and George — whether the branch network has reduced at a sharper rate north of the border than it has south of the border, or is that unfair? I will go to you first, Brian, and then George can come in.

Mr Gillan: Factually, from AIB's perspective, that is correct, but the Republic of Ireland and Northern Ireland are different markets, and we have different shares in them. They are distinct in those terms. AIB does not take lightly any decision to close a branch, but such decisions are in response to the customer behaviour move towards digital that Eric and Paul covered. I will give an example of that. In a typical month, 95% of personal customers and 85% of business customers do not visit their branch. There has therefore been a dramatic change in behaviour over the past 10 to 20 years.

The Chairperson (Mr O'Toole): What is the Bank of Ireland's perspective, George?

Mr Higginson: Our experience is similar to that which Brian described. I agree that what you say is factually correct.

The Chairperson (Mr O'Toole): The reduction has been faster.

Mr Higginson: It has. There are differences between the two markets, however. In the North of Ireland, we are further ahead in the cycle than we are in the Republic. Historically, we have not had the same competition in the South of Ireland, and we still do not have the same competition that, as we have been discussing, there is here.

I work quite a lot with our parent business in the South of Ireland, and we are starting to see the impact of competition, especially with companies — Revolut etc — coming in. Competition is coming, and, again, that is part of the reason behind our investment. We have to be digitally fit in order to compete with those competitors.

The Chairperson (Mr O'Toole): OK. That is useful. Before I bring in members, I will ask our representatives from Santander and Barclays for their perspective on services that are provided in Northern Ireland and what observations they would make about the Northern Ireland market and its offerings being distinct from the GB market and its offerings. I will come to you first, Brian.

Mr Brian Mulligan (Santander): Our experience is very similar to what some of my colleagues have said. We also strive to achieve that balance. Your question is whether we see many differences between GB and NI. In my day job, I cover a portion of the West Midlands and then Northern Ireland. I therefore see both regions in action. Customer behaviour in moving towards digital is largely similar. We sometimes think that there are lots of differences, but personal customers' behaviour in particular is very similar in both regions.

I am happy to reference our recent announcement about closures at this point. We are closing seven branches here. I must say that that decision was not taken lightly. We understand the implications that it has for our own people and our customers. Some of the actions that we take are missed. We talk a lot about balance: to pull completely out of a town and leave nobody behind would not display balance. What we aim to do is to retain a community banker in a local building in every town that we leave, with the exception of Larne, which we will not leave until a banking hub is established. That makes Larne slightly different. In the other six towns, we will have a community banker in a local building supporting customers one day a week. We will therefore have a physical presence for customers.

It is important to point out that we are aware of exactly the number of customers that rely solely on us. Alongside LINK, we have done a thorough review, so we know. Between now and the closure dates, we will therefore have a conversation with every one of those customers to make sure that they know how to bank in the future. To answer your question, the challenges on the mainland are very similar to those here.

The Chairperson (Mr O'Toole): You said that you do not leave the town without leaving behind a community banker. I know that it is not where I represent, but I am from Downpatrick, and Santander is closing its branch there. That market town had been anchored by most of the banks represented here today. I can be corrected, but I think that all but one has now gone, or most are going.

There may or may not be a decline in the amount of cash that traders on the high street have to bank. They can bank it in a post office in a literal sense. It engenders, however, a sense of despondency at times on high streets, because, once the bank goes, there is a sense that economic activity there in general is going.

Before I come to you, Daniel, I will bring in Paul. I will then bring in others. There is a sense that, when bank branches close, there is a knock-on effect on not just the individuals and small businesses that bank in that specific branch. Closing branches gives the appearance of, or provides an accelerator effect to, economic activity leaving the particular town. That often resonates in a deeper way, and it possibly even deters investment, although evidence for that is anecdotal. May I ask for your observations on that, Paul?

Mr Leonard: You are absolutely right. There is no question that the bank is sometimes the most important building in the town. That having been said, buildings can be repurposed. There are examples of their being repurposed for hospitality or turned into residential buildings. At the same time, however, it is not reasonable for banks to continue in a town if a particular branch is loss-making or is not viable. Banks have to adapt to create the capacity to make the investment that we have heard about.

That is a unfortunate, but, as retail moves to out-of-town business parks and the multiples take market share from the small retailers, there is a broader issue with high streets and town centres generally. It is not just about banks but about the broader issue of how we revitalise our high streets, and it is not in my remit to cover that.

The Chairperson (Mr O'Toole): Indeed. The high street task force would be useful if it were still in existence. There is a point to be made about towns perhaps not being where they were at economically. If there is a downward trajectory, individual banks in those locations tend to be under a bit more pressure as a result of the effects on profit and loss.

Daniel, before I bring in members, I want to hear your observations about products and about how things differ between the market in Northern Ireland and that in Britain.

Mr Daniel Wallace (Barclays Bank): I echo the comments that you have heard from others. We see similarities across the UK, including in Northern Ireland. If you are asking for my opinion on products and services, I will say that the operation that we have in Northern Ireland is very similar, as others have said. Multichannel banking means that we provide exactly the same products and services in Northern Ireland as we do in the rest of the UK. There is therefore no difference in our outlooks.

The Chairperson (Mr O'Toole): I will now bring in members. Members, as I said, try to be as focused as possible in your questions of witnesses.

Ms Forsythe: Thank you very much, everyone, for coming here today. I really appreciate it. I will speak to the business piece first. Small businesses and microbusinesses are the backbone of the Northern Ireland economy, and that, coupled with Northern Ireland's rural nature, leads to a number of challenges. I represent South Down, and, last week, when we were in Kilkeel with the Committee, we heard evidence from the Kilkeel Chamber of Commerce. In that evidence, a lot of comments were made about the challenges that small businesses and microbusinesses, including local farm businesses, face. When they need to do their business banking, they have to take time out from their business to travel some distance, and they sometimes spend half a day doing their banking. There is very real testimony to that.

Do the bank representatives or UK Finance wish to respond about how the banks are taking on board feedback from small businesses about the challenges that doing that presents and the pressure that it puts on the local economy? Are there any strategic plans or approaches for how banks can address such issues locally? Last week's evidence included a call for a focus in the banking hubs on having a business space. I do not really feel that everything should be on the banking hubs to do, however. What are the banks' feelings on how they are addressing those issues?

The Chairperson (Mr O'Toole): If, like Diane, members have a good but broader question, one of the UK Finance representatives can answer it. If specific banks then wish to add their perspective, they can do so. Otherwise, members can direct their questions specifically at individual witnesses.

Mr Leenders: As the architect of the initiative that went on to become Cash Access UK, I can say that, on the distribution of banks, our organisation was very thoughtful to your earlier point about the communities that may be left underserved. The suite of services provided is not just about banking hubs but about whether there is equivalent provision in post offices and ATMs. Improving technology will allow for multifunctional devices that will permit money to move in and out, which may be more appropriate in certain circumstances. Such devices would perhaps lend themselves to cash-and-carry centres in certain environments. That would make the banking operation much more convenient.

There are three points to make about some of the criteria for the allocation of a banking hub that are particularly relevant to the question about the extent to which communities feel, in some way, that loss. First, we look very carefully at vulnerability. We ask ourselves how many vulnerable consumers there are. You have heard from colleagues that, at an individual level, brands do consider that. The second is distance. There is now a regulatory requirement that free cash withdrawals and deposits be available within 1 mile in an urban location and within 3 miles in a rural location. The requirement mirrors that for post offices.

The third is geography. By that, I mean that if there is a steep hill or another physical access constraint to a particular location, we will take that into consideration as well. Paul's point is valid, however; there comes a point at which it is no longer commercially viable to sustain the physical premises. That is where a hub, an enhanced post office or another solution might be more appropriate.

I will make one closing point. All of the closure activity that any brand undertakes is subject to forensic scrutiny by the Financial Conduct Authority. It is not a unilateral decision based on a more informal concordat, which perhaps was the case five or 10 years ago, pre-pandemic. There is now a regulatory requirement on nominated brands when they close hubs to undertake a series of steps. To an extent, that also picks up on the point that you raised.

Ms Forsythe: Thank you for your response, but that is more in broad terms. To go back to my question, I want to ask specifically about the banking landscape in Northern Ireland for our businesses, rather than just for personal accounts. The microbusinesses and our farmers feel that they are not being served as well as they could be. Are there separate strategies for personal banking and business banking? Ultimately, there are challenges across the economy in Northern Ireland. As MLAs, we are doing the best that we can to help support and grow our economy. Is there a separate strategy for business banking, given the feedback and frustration from our local chambers of commerce?

Mr Leenders: There is a single regulatory requirement for the 3 km rule. However, the longstop is that any community can request an appraisal by LINK for a hub or an alternative service in an area, if they feel that the community is undeserved. We have done that to deliberately to address the point that you made, where the empirical evidence might not substantiate a need that the community feels strongly about.

Ms Forsythe: I suppose, then, that it is up to each bank to decide individually how they deal with their business customers and whether they engage with a banking hub or make separate arrangements. I appreciate that banks here are in competition and I do not really know who to address my question to. I hear real concern about the situation, week in, week out, in my constituency office. We got evidence from my local chamber of commerce last week saying that. I want to make it clear, while we have representatives of all the leading banks here, that our small businesses, especially in rural communities, have a real desire to have direct access to business banking.

Mr Leonard: It is helpful to understand that there is the Post Office offering and there is the hub, which can provide services. I know that there is an education element in awareness of hubs and their services. It would be useful to understand what they cannot do. Last night, I listened to the audio from last week's meeting. Why do they have to go to Newry to do something? Why could they not do it locally? Could they not find another channel? It does not seem to be the best use of anyone's time to spend three hours driving from Kilkeel over to Newry. What is it that they cannot do? Perhaps we could have a conversation on that to see whether there is another way of doing that. Awareness and the promotion of what is done in hubs would help and would make people aware of their services.

Ms Forsythe: A common theme in the feedback that has come from across South Down, which is big area with a number of chambers of commerce, is the desire for continuity in the bank representatives that the businesses interact with. In previous years, they would have enjoyed having a relationship with their business bankers. They walk in and the banker knows their business and when they are experiencing a bit of pressure. When they have to go further afield or use a hub, there is not always continuity of service. I just wanted to make that point.

Mr Leonard: Is it a Captain Mainwaring bank manager that you are talking about? [Laughter.]

That is definitely an issue, but in every industry people chop and change and move around. There is a consciousness, however, of that issue. Having spoken to some of our members earlier, I know that some of the hubs are staffed by local people who have worked in local banks and know the community a bit better. However, I accept that that is a genuine issue.

Mr Caldwell: I will pick up on that point from a Danske Bank point of view, Chair, if that is OK?

The Chairperson (Mr O'Toole): Please do.

Mr Caldwell: We are very conscious of supporting everyone in the community. Convenience now for most people is their phone and being able to do things online, but we know that that is not for everybody. That is why we have 24 branches. We provide our service through 24 branches, through our local contact centre and through the 480-odd post offices. That is really important in rural areas, where, despite some closures, there are still a lot of post offices and businesses.

Maybe a process of education is needed here. Businesses can lodge, withdraw and get coin out of their local post office. The post offices provide a great cash service as well as the banking hubs. On the business side, we have a large business team that is based in three business centres. We have small-business advisers, a corporate team, a business centre team and a dedicated team in our call centre. We have a big share of the business market. We are very proud of that and are determined to retain it, so I can assure you that we will do what we need to do to support those business customers.

The Chairperson (Mr O'Toole): Gerry Carroll is next. You can put any broad questions that you have to UK Finance or you can direct your questions at anybody.

Mr Carroll: Thanks, Chair. I have three quick questions and I hope that I get to ask them all. My first is about profitability. Most banks made large and increased profits over the past year or so. I ask the people in front of us today how that can be justified, especially given the context of so many bank closures across communities.

The Chairperson (Mr O'Toole): We will go to UK Finance first, and then if any bank representatives wish to come in, they can do so.

Mr Leenders: Full disclosure: I am the vice-chair of a building society. We consider profit as much as a publicly owned organisation might. It is important to consider profit through an economic cycle. Some of the key drivers for profitability that we have seen in the industry over the past two or three years have been the widening of interest margins as a consequence of the rate-rise environment. Prior to that, we had 10 years of near zero rates in which those margins simply were not available. You can see that clearly reflected in share price. If you think back no more than 12 or 18 months, the shares in the larger banks were trading at between two thirds and three quarters of their book value. In other words, you could, theoretically, buy a bank at a 25% to 33% discount of what its break-up value might be. That has now changed, and we are reaching parity. That is a good illustration of how profitability does need to be considered through the cycle.

I appreciate that we need to be a little conscious of competition here. However, in competitive environment with a relatively fixed-cost business because, as Mark mentioned, of a large, fixed infrastructure, it can be challenging to be as agile as other business models in driving out cost. As that profitability ebbs and flows, the fixed costs in those businesses will not move as quickly. Therefore, it is important to take that longer view on profitability.

It is probably helpful for others to speak specifically to their own finances.

The Chairperson (Mr O'Toole): Does anybody else wish to defend their bank's profits?

Dr Aiken: Go ahead. Crack on.

The Chairperson (Mr O'Toole): It is a fair question. A point that people will raise is that we have had record bank profits over the past couple of years, and branch closures have not particularly decelerated during that time. In fact, they have possibly accelerated. That is a question for the sector, and it is people's perception.

Mr Crimmins: I will pick up on one of Eric's points. You cannot look at the level of profit in isolation. You need to consider the level of capital investment that is deployed to generate that profit.

I will give you the NatWest position on that. Last year, the return on capital was 17·5%, it was something similar the year before and it was 12·3% the year before that. That was nothing spectacular. On Eric's point, banks were trading at a discount to the investment that was put into the banks. Is that a reasonable return for the level of risk that is being taken? I think that it is.

I will add a couple of points. The charges that banks make to their customers, especially consumer and SME businesses, across all their products and services, are governed by consumer duty principles. Those principles clearly state that there must be a fair and reasonable value exchange baked into the prices. The banks' ability to charge customers is governed by those principles, which are set out in what was probably the FCA's biggest consumer initiative of the past 10 years.

I move now to my final point. You referenced the cost savings from branch closures. The composition of the cost base is changing. As branch closures happen and costs reduce from there, there is investment in building digital capability, financial crime mitigation, cybersecurity and risk mitigation. Therefore, the cost does not permanently and forever reduce; it changes, and the composition of that cost base changes with it.

Mr Carroll: Thanks, I appreciate that. Obviously, the point stands: record profits have been made, but bank closures are still occurring and the profit is not being passed on to customers.

I have a separate question for you, Mark, on investment, generally. A report from Advice NI, a few months ago, stated that Ulster Bank has £7 billion in deposits and that around half of that was loaned out in the North, as I understood it, and about half invested outside the North. That is somewhere in the region of £3·4 billion. I know that you cannot account for every penny and pound, but do you have any idea where the bulk of that £3·4 billion is going to?

Mr Crimmins: It is a matter of public record that, since May 2021, Ulster Bank as a stand-alone legal entity no longer exists. Its business, assets and liabilities were transferred on to the balance sheet of NatWest. The consequence of that is that the funds from the deposits that our customers make with us and what we lend out mingle with the other regions of the UK. We do not ring-fence those and decide that x amount goes into Northern Ireland and y goes somewhere else. I emphasise the point that there is no impediment to us lending money to our businesses in Northern Ireland. Typically, high street bank funding structures are long on deposits over lending, so you, typically, tend to have more deposits than you have in lending. Those deposits —.

Mr Carroll: I appreciate that, but, with respect, my question was more about where the money is going outside the North. You might have answered that earlier.

Mr Crimmins: To be clear, the money is not captured in the North. It is raised, but it sits on the UK balance sheet of NatWest.

Mr Carroll: I appreciate that. It might be more a question for NatWest. My final question is to Daniel, who is from Barclays customer care, if I am correct. A lot of concern has been raised by Palestine solidarity activists about the connection between Barclays and Israel, and a lot of people are cancelling their accounts with Barclays. Palestine solidarity activists in Belfast, Derry and elsewhere across the North have raised opposition to the bank's connections with Israel. How would you respond to those criticisms and points?

The Chairperson (Mr O'Toole): Go ahead, Daniel. Obviously, it is a specific question, but it has been put. I am happy to bring in Paul, as well —.

Mr Leonard: Daniel can answer if he wishes, but I do not see the relevance of that question to the terms of reference for this Committee.

Mr Carroll: It is about customer care, and, in the banking inquiry, we are talking about banks and practices, including the ethical investment of banks. It is something that has been raised by members of my constituency, and by people across the North. That is why —.

Mr Leonard: I do not understand the relevance to the inquiry, but it is entirely up to Daniel whether he wishes to answer.

The Chairperson (Mr O'Toole): The question is there. Should Daniel wish to offer any context, that is fine. I do not constrain members when asking questions, other than to say that, fundamentally, this is an inquiry about banking in Northern Ireland. Do you wish to add anything, Daniel? If there is nothing in particular that you wish to add, that is fine.

Mr Wallace: I agree about the relevance to what we are here today for, but I do not want to avoid the question. I am more than happy to pick up directly on a one-on-one basis and provide information that will, hopefully, help answer the question.

The Chairperson (Mr O'Toole): That is fine. There will be correspondence from Daniel on that.

Mr Carroll: Thank you. Thanks for that answer. I think that the question was relevant.

The Chairperson (Mr O'Toole): It will be dealt with, Gerry. That is fair enough.

Ms Dolan: Thank you all for coming in. My question follows on from Gerry's question on profits. The FCA says that, when banks and building societies shut down, people in the local areas must still be able to access their money. I represent Fermanagh. I live in Belleek. We have not had a bank since 2016. Richard, you said that post offices are there. I did a quick Google search. I could be wrong, but, last year, post offices made profits of £82 million across Britain, whereas banks made in the region of between £218 million and £10·4 billion. With that level of profits, how are you making sure that people are still able to access their money and banking services without being so reliant on the post office?

Mr Caldwell: There are two parts to that question. One is about access to finance — access to cash. Fermanagh is obviously a rural area. We have two branches in Fermanagh and another one in your constituency. We recognise the need and desire of people to come into branches to transact, in particular, more complex banking needs. We know that, in rural communities, access to cash through post offices is a really important service for us. Despite some closures, there are still 40 post offices, or more, available in Fermanagh. That is now an important part of the financial landscape in Northern Ireland. The combination of post offices, bank branches and contact centres means that, if you are not digitally connected, you can still do the vast bulk of your daily banking.

On the question of profits, as has been said before, banking is cyclical. I think that customers value a strong bank. It is somewhere that protects their money. Banking depends on three different things. First, there is the health of the economy in which it operates. We are all interested in the health of the economy here. I know the good work that you are doing to support that. Secondly, there is the activity of the bank and the brand, and the activities of the bank in terms of attractive products and services. Thirdly, there is the Bank of England base rate. I will take each of those for, say, 2024.

Last year, the Northern Ireland economy actually performed relatively well, which was a good foundation. We will have to wait and see what happens this year. Our bank, in particular, performed really strongly. Our activities were really strong. We grew our lending by 4%, which was more than the market. We approved £1·5 billion of new lending into Northern Ireland for businesses and personal customers with mortgages. We grew our deposits by 7%, which, again, was more than the market. Our products and services related well to our customers in Northern Ireland. Our activities were strong. Of course, the third element is the Bank of England base rate. Last year, it was one of the highest rates for 20 years. Those things come together collectively to form our profits. We will see what happens in the economy as a result of the current turmoil. Of course, we will try very hard with our own activities to remain an attractive bank for people. Base rates, as you are aware, are starting to decline.

Ms Dolan: That is fair enough, but it does not sit well with people who have to make a 50-mile round trip to access a bank branch.

Mr Caldwell: Yes. I agree that, if you live in Belleek, Kilcoo, or wherever, it is a distance to one of our branches in Irvinestown, Dungannon or, indeed, Enniskillen. I appreciate that.

The Chairperson (Mr O'Toole): Did you wish to add something to that, Eric?

Mr Leenders: I am not sure whether it was part of your question, but, for completeness, I thought that I would add that the provision of banking services over post office counters is a commercial arrangement that is funded entirely by 30 banks across personal banking and 14 or 15 banks across commercial banking. It is actually fully funded by the banking sector. It is, effectively, the rent for the use of post office counters. Forgive me, I was not sure whether that was part of what you were interested in seeking to understand.

Ms Dolan: That is helpful, but the only thing is that some towns and villages have even been left without ATMs. However, I will move on to my next point before Matthew pulls me in.

Last week, we went to the banking hub in Kilkeel, and there will soon be seven banking hubs across the North, mostly around the eastern corridor but nothing west of the Bann. Last week, I raised the issue of Lisnaskea, which is in Fermanagh. The last bank in Lisnaskea closed in 2024. My colleague Áine Murphy was working with the local community to get a banking hub. They put in their application, and it was refused. Bear in mind that Lisnaskea is the second-biggest town in Fermanagh. That was refused on the grounds that the last bank had already closed, and one of the criteria was that the last bank had to still be open. However, because the last bank had left, they were not allowed a banking hub. There might be an ATM inside one of the shops, but there is no ATM on the street. Let me reiterate this: Lisnaskea is the second-largest town in Fermanagh and it is left without access to cash. Is that for Eric to answer? Who wants to take that up? It is a serious issue.

Mr Leenders: As a community request, I am not sure that an element of the criteria is that there had previously been a branch that has shut. It would be helpful if I could pick that point up offline with LINK, which undertakes the assessment, so that I can give you a full answer. I am afraid that I just do not have the granularity of each confirmed branch closure.

Ms Dolan: That is fine.

The Chairperson (Mr O'Toole): It is a slightly absurd situation —

Ms Dolan: Absolutely.

The Chairperson (Mr O'Toole): — that you have to have a —.

Mr Leenders: Sorry, could you repeat the name of the location for me?

Ms Dolan: Lisnaskea.

The Chairperson (Mr O'Toole): Paul can [Inaudible.]

Mr Leonard: I will spell it for you. [Laughter.]

Dr Aiken: This was before the legislation change [Inaudible.]

Ms Dolan: Yes.

Mr Frew: It was a regulation change.

Ms Dolan: It closed in May 2024, and the criteria changed —.

Mr Frew: If Lisnaskea was applying for it now, it would probably get it. Is that not it?

Ms Dolan: No, it would not get it because the bank has already closed.

The Chairperson (Mr O'Toole): We have eight witnesses, and we can chat about it afterwards. Are you happy enough, Jemma?

Ms Dolan: Yes, I am happy. Thank you, Chair.

Dr Aiken: I have a couple of questions, with the Chair's indulgence. You lost 30% of your market share in a decade and a half, and that is for Danske, Ulster Bank, Bank of Ireland and AIB. You have also shut down a considerable number of branches. Do you think that there is any linkage between those two elements?

The Chairperson (Mr O'Toole): Do you want to ask that of a specific representative?

Dr Aiken: Any of the —.

The Chairperson (Mr O'Toole): Any of the Big Four.

Dr Aiken: Danske, Ulster, Bank of Ireland or AIB; any of them.

Mr Crimmins: I will go first. We have lost market share mostly in the personal market. Generally speaking, collectively, we have maintained a high percentage of market share in the business market. In the personal market, I believe that we have lost share to online digital providers, so that draws me to the conclusion that it is not a consequence of closing branches.

Dr Aiken: Danske?

Mr Caldwell: It is a fair point. We opened 16,000 new personal accounts last year. That was good, but almost all of those — not all of them — were done digitally. There is no doubt that account opening has moved to become more digital, and, as Mark said, those new digital-only banks are scraping away at our market share. They are eating our lunch, and we are concerned about that. For some customers, not having a branch is maybe a factor, but, again, we have a digital solution as well as Chase or Starling do, so customers have options. That is the key thing. From a consumer point of view, it is about options and what is best for the consumer. What is best for us is a different story.

Mr Gillan: The main driver is the competitive environment. There could be an indirect link to branch closures, but the main driver of the market share movements over the last 10 or 15 years is the increased competition. Alongside that, there are changing expectations. We have customers who basically want to be digital-only, and we also have customers who want no digital element. We have to cater right across that spectrum. As Mark outlined, certain competitors are focused on one part of the market rather than on being a full-service bank. The main challenge with the market share piece is the competition.

The other trend that we have started to see is that the younger demographic will have more than one bank account. I grew up in a world where I probably did not have a bank account until I was 18. Now, people are getting bank accounts when they are younger, and they will probably have multiple bank accounts for different purposes. We have seen and will probably continue to see that change.

Mr Higginson: From our point of view, building on what the rest of my colleagues said, the difference on the consumer side has definitely been the approach of digital. It is not to do with the branches. The other thing that we may touch on later is the issue of charities, which is a good issue, and I would like to speak about that. On the digital side, one of our problems is that the paper-based, manual processes that were done in a branch put us at a significant disadvantage against the automation that allows people to open accounts etc. One of the reasons for and one of the key blocks of our £100 million investment is a new system for account opening. That is expensive. To be quite honest, the amount of money in that dwarfs the cost of a branch closure. On the personal side, it is another arena that we have talked about.

On the business side, one of the things that we have to be careful of is that we constantly talk about branches as though a branch were the only method of being with our customers, but we run four regional business centres as well. We also have a team of regional managers. Whilst they may be based in somewhere like Newry, their job is to be out in the community with those businesses. So, at times, we need to talk about the rounder picture as well. Certainly, there would be a bigger impact if we shut our business centre in Derry than if we closed a branch. The business centres are a big part of the business side.

Dr Aiken: My second question, Chair, is about business banking. Obviously, one of the things that we are very concerned about is the ability of our small and medium-sized sectors to grow. Growth is a key part of this Government's proposals and of what we are trying to do. Again, this is a question for all the banks that we have here.

As an MLA, I am regularly contacted by small and medium-sized companies complaining about the banks here and access to funds. People who have been banking with a bank for decades — particularly Ulster Bank; it is a classic — are now in a situation where, every time that they go back to their bank, they have to provide more and more: they need to demonstrate more liquidity; they have to put more and more up as collateral; they need to do more of this or more of that; and they feel as though they are getting de-banked — all those sort of things.

I see that, in your presentation, you say that Northern Ireland is better off than the rest of the UK. However, from what we as MLAs are hearing, there is a strong feeling among companies that have banked with you for a long time that the rules have changed and that you are more interested in getting money out of mortgages or something like that and are not helping the business sector. So, if the banks could talk about what their approach to the business sector is, that would be very useful.

Mr Leonard: Chair, if I may come in first, let me say that I understand. I do not doubt the conversations that you have with your constituents, but the facts are there. The demand for SME lending has been reducing steadily. There was a spike when businesses took advantage of the COVID loan schemes, but, generally speaking, the trend is that the business banking market that these guys are competing for is shrinking. As loans repay, deposit levels are significantly in excess of the level of debt in the SME. Twice the number of SMEs deposit as borrow. Obviously, the ones that borrow need it; the ones that make deposits do not, so there is that dynamic. UK Finance gathers statistics on loan approval rates from all regions and all banks, and the approval rates in Northern Ireland are consistently higher. There is a shrinking market. There is evidence, as some of the surveys show, that businesses are more confident when they want to borrow. I am not doubting what your constituents are saying, but I am saying that —.

Dr Aiken: Some of them are not small companies. That is one of the things that is worrying me about it. It is because they are saying — I will not go into the specifics — that they have been banking with Ulster Bank for two decades and are now having real difficulties, and it is as though they do not have that personal relationship any more. That has gone, so what are the banks there for?

Mr Leonard: I will let the banks answer that question, but what I am saying is that the empirical data that we have shows a shrinking market, high loan approval rates and high confidence in getting loans. Do any of the banks want to come in on the second part of the question, please?

Mr Crimmins: I will come in on that, given that you referenced Ulster Bank twice. [Laughter.]

Dr Aiken: Mark, I am not picking you out, but people are talking to me specifically about the issues with Ulster Bank.

Mr Crimmins: I will start with an offer. If specific constituents or other stakeholders are concerned about Ulster Bank's service levels, I am happy to take that up privately. We should not discuss individual customers here.

Our offering and our strategy for businesses in Northern Ireland is to replicate what NatWest provides in GB for its customers there. It invests heavily in product and proposition. A big part of my role is making sure that a customer in Belfast gets the same as a customer in London. That is the core of our strategy. That will not surprise anyone in the room.

Specifically on supporting customers with their gross investment aspirations, again, I do not mind sharing some numbers that are not particularly commercially sensitive. We have four customer segments: micro, small, medium and large. All four grew their loan books last year by, on aggregate, 10%. If we strip out the impact of COVID loan repayments, that growth was more in the order of 13% to 15%. We are lending, we are deploying our balance sheet, and customers are borrowing.

There may be customers who, you think, are struggling to access finance, but our approval rates last year were over 90%. For the 8% to 9% of customers whom we could not support, that was typically because of one of two things: serviceability or adverse press. When it comes to serviceability, we have a delicate balance to strike between supporting customers and economic growth and making sure that we lend responsibly, do not over-burden the customer with debt that they cannot service and manage our balance sheet responsibly. If we cannot support the customer, we will write to tell them why, we will offer them an independent appeal for a different sanction or to look at the credit application, and, with their consent, we will offer them a referral to a government-based portal to alternative sources of finance. Our approval rates were over 90% last year.

Mr Caldwell: I agree with Paul. We are seeing less demand in the business. What is happening to our balance sheet is that deposits are rising. Businesses now deposit more with us, relatively speaking, than they borrow. We are in business to lend. Last year, we approved £750 million of lending to businesses in Northern Ireland — that does not include what we did in the rest of the UK — and we welcomed 1,500 new small business customers to the bank.

I will respond to your point. We have a strong relationship management team who look after our customers. We have segments in the same way as Ulster Bank does. We have branch-based customers — small business customers — who have a dedicated relationship manager; we have business centre customers, all with a dedicated, named relationship manager; we have a corporate team with named relationship managers; and we have two support teams, one for small business and a big team in our call centre to support those business customers. We pride ourselves on what we do in business. We have a big market share, and we absolutely want to lend and support those businesses in Northern Ireland to help prosperity, support jobs and grow the economy.

Mr Gillan: I will not repeat what the others have said, but, from a strategic perspective, any bank needs to lend. Without going into the assets and liabilities on bank balance sheets, ideally, you want them to be in balance. Lending has to be responsible. We have similar outlets to the ones that Mark mentioned. Sometimes, you have to say no, but that does not mean never. We train the staff so that they can explain to customers what steps they need to take to be bankable with us or with another financial institution.

Mr Higginson: There are a couple of different points for us. First, we see people sitting on their deposits a wee bit. They are sitting on their cash, driven by the macro environment that we may come back to in a minute. We see that from time to time. Certainly, post COVID, it has been surprising to see how much of that cash has stayed there instead of being invested for growth.

We are open for growth. We are an Irish bank, we are part of the community, and we will not survive if we do not have a strong community and a strong economy here. We are very committed to that. We also do a lot of work in the community, not just on the personal side but on the business side. I have a real thing about trying to grow our smaller businesses and newer businesses. We are a big partner of Catalyst in Belfast, Derry and across Ireland. Sustainability is a big thing. We met your colleague Andrew Muir recently on sustainability, especially in the agrisector, which we may come back to later. That is a big part of business for us. We need to make sure that that is sustainable.

Last year, we invested in a brand-new commercial finance system, which is live now. That is a digital system for the business community. We are a wee bit different from others, in that we lend across the island of Ireland. We lend to customers on both sides of the border. We see a lot more customers who need to have that cross-border banking experience. We are here to support the business community, but, as my colleagues have said, that is subject to the macro environment as well.

The Chairperson (Mr O'Toole): Thank you. I have a quick point before I bring in Deirdre. Northern Ireland has a lower innovation rate than the rest of the UK. Basically, the upshot — I think that you touched on this, George — is that it is a bit harder to persuade SMEs to have a risk appetite and to want to take on extra debt to invest in their business. Why is that?

Mr Leonard: That is a very good question. I do not know whether you have seen any of the British Business Bank's reports. It issued a very interesting one this morning about the level of awareness. One of the ways in which to grow is to take on new equity. Generally speaking, businesses here are much more reluctant to take on external equity. They want to control their own business.

The Chairperson (Mr O'Toole): There are more family-owned businesses, perhaps, with a higher percentage of family —.

Mr Leonard: People would rather be the sole owner of a small business than a 50% shareholder in a huge business. It is just part of the psyche here. I do not understand it.

The British Business Bank has done excellent work on raising awareness of finance options. Invest NI has also done a lot with new equity funds and the new debt funds that it has floated.

The Chairperson (Mr O'Toole): Briefly, before I bring in Deirdre, if that is a structural issue, is the Department for the Economy consulting your banks about increasing that? One of the things that we are trying to get at in this inquiry is the structural issues that exist in banking. This is not to blame you guys, but one of the questions that is probably not being asked in as direct a way in London, or, for that matter, Dublin, is this: what specific issues in Northern Ireland are preventing or discouraging innovation? Does the Department for the Economy ask UK Finance or individual banks that question?

Mr Leonard: I will kick off. The banking model is generally low-risk, low-cost finance, and you then go along the spectrum through the different forms of finance to pure equity. Banks need to lend. There are affordability rules. Banks have to test whether a business can afford to take on a certain burden and repay a certain amount. It is very hard to do that with new businesses. Traditional commercial banking, which these banks represent, is not a good fit with that side; it is more suited to other forms of finance that are higher risk and higher return. There are other means in that regard. Once a business gets to a certain level and wants to scale up, there are certainly financial options available.

George referred to Catalyst. Danske does other work on innovation and trying to encourage start-up businesses. They can help, advise and house them, but they cannot necessarily lend to them.

The Chairperson (Mr O'Toole): Indeed, but they can do payments and stuff for them. There is a difference between a barber who wants a small business loan and a start-up that is innovative.

You wanted to come in, Eric. I will then bring Deirdre in.

Mr Leenders: This is a very brief observation: the issue of lending against intellectual property or intangible assets is something that the Department for Business and Trade is also considering in GB. As Paul said, it is much more difficult for a traditional banking proposition to lend in that space, although there are plenty of examples of where that has been possible.

The Chairperson (Mr O'Toole): I still do not totally understand where we are. Let me make up an example: a family-owned manufacturing company here that has been around for 50 years or 100 years will have a lower risk appetite than the equivalent company, in a statistical sense, in the English Midlands, or possibly even the Irish midlands, which, the statistics would reveal, has a slightly greater innovation rate and maybe a slightly higher investment rate, whether that is through conventional lending via a commercial bank or through taking on equity.

I am less interested in that bit. I know that it matters to banks, because those are two completely different types of activity. It is clear, however, that, at the front end, we have more risk-averse businesses. Should the banking sector do more detailed, specific engagement with our policymakers at a devolved level to understand what the challenges are? It is your banks — Bank of Ireland, Danske and Ulster Bank — that provide banking services to small, family-owned manufacturers that appear to be slightly more risk-averse. It is not that those are not great businesses in Northern Ireland, but they may be slightly less willing to take a risk on innovation, to take on debt or, indeed, to take on extra equity. Are those conversations going on? You are nodding, George.

Mr Higginson: We have had conversations with the Department for the Economy and the Economy Minister over the last couple of years. We are happy to engage with any of you on an ongoing basis privately. The more we can work together on that, the more we can come up with some innovative ideas. In the agrisector, there are conversations about how to address the problem of inheritance tax that is coming up and also the inheritance tax problem for family businesses and how those are passed on. There may be an opportunity here to change some of the behaviour of previous years, because that will not be the same going forward, so engagement would be good.

Mr Crimmins: That is a great question and a great challenge. It points to some of the fundamentals that the inquiry may want to consider, such as whether there are structural deficits in the funding landscape in Northern Ireland, and that may be one. We have accumulated some insight on that. We have run an entrepreneurship programme for almost 10 years. Over that time, we have put 1,000 entrepreneurs through the programme free of charge. One of the insights that we have accumulated is on the access to funding landscape. If it would be helpful, we can engage offline on that in order for you to get a deeper understanding of what, we believe, exists there.

The Chairperson (Mr O'Toole): That would be helpful. I suggest that to the Santander and Barclays witnesses as well. At the start of your evidence, Brian, you mentioned that you did not see that much difference between businesses in the English Midlands and those in Northern Ireland. If there are —.

Mr Mulligan: I think that I said that, for personal customers, whom I work with day-to-day, there is not much difference. However, business-wise, I am probably not best placed to respond to that.

The Chairperson (Mr O'Toole): If your organisations have any additional evidence, we will take that. Deirdre, thank you for being patient.

Miss Hargey: Thanks very much. Apologies: I was a bit late to the meeting, so I may have missed some of the contributions.

I will go back to four broad areas. The first is bank profits. Earlier, you spoke about how some of the money is reinvested in the bank for infrastructure needs and some of the small business programmes. Is there a standard percentage share that goes back to shareholders? If so, what is that? Is it 50% or over 50%?

When we were in Kilkeel last week to look at the banking hub and meet members of the local Chamber of Commerce, we talked about the issue of bank closures. People there have seen a number of branch closures, but they have not seen a reduction in their banking fees. They are not getting the same standard of service, but they are still paying as much. Do the banks ever consider the percentage share that goes to shareholders and the potential for reducing that in order to reinvest in the local economy to try to support growth and sustain that economy?

The Chairperson (Mr O'Toole): Can we stop at that? Deirdre, just to break it up, we will get an answer to that first and then go on to the next bits.

Miss Hargey: Yes.

The Chairperson (Mr O'Toole): Eric, you might be best placed to answer that one.

Mr Leenders: First, may I introduce a note of caution on dividend distribution strategies? That is part of a commercial franchise that is commercially sensitive. There will be public information and investor analyst assessments such as earnings per share etc. What each bank determines strategically that it should distribute by way of dividend to attract capital is a commercial matter. From an antitrust perspective, I need to be clear on that.

The Chairperson (Mr O'Toole): The dividend policy of listed companies is their business, but are you able to answer, in a general sense, Deirdre's question about the picture of bank dividends? I imagine that an analyst looking at the sector might be able to tell me, roughly speaking, what the dividend policy is, so I am sure that you can.

Mr Leenders: Yes. What has been paid is public domain information and available for all to see. It would be wrong to consider that firms work collectively to a standard or benchmark. That is my concern, because, of course, that would have the potential to lead to collusion, which is absolutely not the case.

Miss Hargey: It is about how the public perceive the huge increases in profits, a percentage of which goes to shareholders. Do the banks ever have conversations with each other about slightly reducing shareholder returns in order to invest? Obviously, some of those profits are affected by the interest rates on mortgages and lending, and it is a vicious cycle. You mentioned lending to SMEs, which is one of the limitations here: over 21% of SMEs in the North have experienced barriers to accessing finance. One of those barriers is the ability to obtain capital. Do the banks have a moral obligation and duty?

Ultimately, banks are private companies that need to make profits. However, if those profits are exorbitant, is there an ongoing review process to divide them — to decide what is reinvested in your local customer base and what is given to the shareholders? Do banks actively review the division of profits from a moral point of view in light of the huge levels that we have seen over the last couple of years? The Government have looked at windfall taxes and other measures that have been looked at before, but we would much prefer the banks to take action first. How do banks make those assessments?

The Chairperson (Mr O'Toole): Perhaps you want to come in on that, Eric, Richard has indicated that he will also come in. It will be Eric, then Richard and anyone else after that.

Mr Leenders: The primary consideration is always to provide value and competition in the market. The market determines the extent to which price points are derived, and you will see that in the variation in pricing of mortgage products as the rates change. The countervailing pressure on that, of course, is that, at the same time as minimising borrowing costs for borrowers, banks also have to consider the savings interest paid to savers. Those that have commercial investors and dividend obligations also need to ensure that there is an appropriate return on the capital invested in their business. The obvious risk is the flight of savings to a better deal down the road and the flight of investments to a better investment return, which may or may not be in financial services. The capital may exit the financial services sector.

The detail behind the weighing of those considerations is the commercially sensitive part, which, I appreciate, is a frustration across the Committee. Nonetheless, it is something that we have to respect.

Mr Caldwell: I will cover Danske Bank's position on that point. We are the Northern Bank. We are a separate legal entity in Northern Ireland and in Companies House. We are a wholly owned subsidiary of Danske Bank, which means that we have one shareholder: our group in Copenhagen. When Danske Bank purchased us 20 years ago, it brought a lot of investment here, and it has been a terrific support throughout those years.

There is no dividend policy as such. We assess the capital that we need for growth and the money that we need for investment over a five-year period. We look at that first and then assess whether there is anything extra. At that point, we consider a dividend to the group.

I have to assure you, however, that the decision to pay a dividend, were we to do so, is completely at the discretion of the local board here in Northern Ireland. It is not a decision that comes from the group; it comes from us. In answer to Deirdre's point, we retain money here for investment and for growth in the Northern Ireland economy.

The Chairperson (Mr O'Toole): You are not listed here, though. OK, we will move on.

Miss Hargey: My other question was about branch closures. I know that post office provision, particularly in rural areas, was mentioned earlier. We are hearing news that 108 Post Office branches will potentially be offloaded. Some may sustain, but others may close completely. Is regional balance, which links to access to cash, part of the banks' analysis across the board, and do you consider that when looking at these decisions? Does regional balance play a part in any of that?

Mr Leenders: The Post Office announcement yesterday or the day before was more about a transfer of ownership from centrally owned post offices to a franchised model. I believe that an assurance was given that there is no intention to close post offices. It is a shift in the ownership model rather than the closure of post offices.

Miss Hargey: We are hearing that part of the difficulty is about where they may shift to local businesses. Some of those post office operators have been to the Committee. They may not be sustainable, so there is a knock-on effect. I am not saying that that is the case for all 108 that are transferring, but there is potential for that. There could be other closures in areas that have already seen bank closures, with the impact that that has on the regional economy as well. That is one of the big issues that is coming out of this inquiry, as well as how it sits with the Financial Services and Markets Act 2023 around access to cash. The banking hubs were born out of that, but can more be done?

It struck me, when we talked to businesses last week about the Kilkeel banking hub, that they said that it does not meet all of their needs. They are outside the Belfast region in a more rural area. Compared with other parts of Britain and the rest of Ireland, we have a more rural demography. Do you look at that in terms of delivering regional balance?

Mr Leenders: The Post Office certainly considers it. The Post Office is a full member of UK Finance but has a slightly different legislative obligation. It has a universal service obligation to sustain the distance criterion that is broadly similar to that of the banking hub model, which is 1 mile; 3 miles in rural areas. The Post Office has to support something like 99% of the urban community within 1 mile and 96% or 97% within 3 miles. If there were to be a post office closure and that post office closure were to impact on the distribution of postal services, including access to cash, the Post Office would need to replace that postal service.

That said, I understand that there can be gaps in provision where there might not be an immediate successor to the departing postmaster. I know that the Post Office is working with LINK to ensure that there is continuity, in a way that is similar to how we would establish a temporary banking hub if it were necessary for a bank branch to close before a permanent banking hub could open.

Miss Hargey: OK, thank you. The other issue, although it is a smaller one, concerns the community and voluntary sector. We have a big sector here that delivers a lot of services for Departments and local authorities etc.

One of the issues that has come up in our inquiry is it being difficult to open an account or a change in personnel making it difficult to access an account. Are the banks aware of those difficulties? Is there a plan of action to deal with them? There are verification and identification issues. Is it an issue that the banks are picking up on? We have heard in the evidence that it is an ongoing issue.

The Chairperson (Mr O'Toole): I will give all the banks an opportunity to answer that. I will start with George, because he has mentioned charities specifically.

Mr Higginson: We are aware of that. It is a strange one. It is understandable that, as fraud becomes more prevalent, the regulator will put in extra constraints. There is the anti-money laundering (AML) Know Your Client ID verification, Deirdre, that you referred to. There is also a greater prevalence of sanctions in today's world. Sanctions checks have to be done on various businesses and individuals — in fact, on all individuals — who are new customers.

As you rightly said, there are two areas: there are the new applications; and then there are the ongoing — what we, in the industry, call — trigger events, where, if there is change in personnel, the process has to be repeated. That is arduous for us and annoying for your constituents. I understand that. We spoke earlier about investing in digital systems. Some of the new digital companies have a lot more technology whereby they can automatically check people's verification, Companies House information and things of that nature. A lot of the answer lies in technology, and we have to invest to keep up.

Another part of it is to do with education and working closer together. We have done a lot of work with credit unions and the voluntary sector. We will be happy to do that more locally with your constituents, if that would be helpful. Helping people to set up charities in the right way, with the correct number of people nominated as bank officials, with signatures etc, can have a dramatic effect. We will be happy to pick that up off-line, if that would be helpful.

Mr Gillan: Deirdre, I am aware of the feedback to the inquiry. AIB specifically opens charity and voluntary accounts as business accounts. As George outlined, we have to go through the normal customer due diligence, Know Your Customer and AML requirements. We have had no specific negative feedback in the complaints, but I have asked the team to do a deeper-dive review of it.

Mr Caldwell: We recognise the challenges for charities and community groups. Over recent months, we have made changes that mean that we need to identify fewer trustees for the vast majority of charities or community groups. That helps. However, the legislation here is difficult. The other difficult thing is that charities and voluntary groups typically work outside normal business hours. It is not a business, though it is like opening a business account, as Brian said. With a business, you can gather people on a Wednesday afternoon, get their ID, go to the bank and get the account opened, or you can upload the information to get it opened. Charities maybe meet once a month or once a quarter, so time delays are definitely an issue. There is probably something as regards the terms or the language. We, in Danske Bank, have worked with UK Finance, the National Council for Voluntary Action (NICVA) and other banks to pull together the 'Voluntary Organisation Banking Guide'. It is a useful step-by-step guide that we have on our website. We have a dedicated team to support voluntary organisations and charities through that process. However, it is fair to say that it is not a great process, and we recognise that.

Mr Crimmins: My response will be similar. The point is well made. We recognise the challenge. To summarise what the other representatives have said, you have a complex set of circumstances: strict regulatory requirements, unusual corporate structures and, sometimes, people who are not used to dealing with this type of thing. UKF, in its paper, referenced the challenge. The industry acknowledges that we need to put a bit of collective thought into how to deal with those challenges.

Mr Mulligan: We recognise the challenge. The key, as was mentioned, is getting it right first time. If we could get it right more often, you would not have the issues. We have invested in new scanning technology that should eliminate some of the errors further down the line, because it holds the information digitally, rather than us continually having to ask for the same thing, which is sometimes the issue.

Mr Wallace: We recognise the challenges. We, too, participate on the 'Voluntary Organisation Banking Guide'. Like others, we are looking at investment in digital journeys and enhancements.

Miss Hargey: Thanks very much for those responses. My last point is on the issue that Gerry raised about Palestine and banking. Do banks look at their ethics with regard to breaches of international human rights law or any rulings of the International Court of Justice? Do banks consider who they do business with and how they do business? I do not expect an answer now, but, perhaps, in any communication that comes back on Gerry's point, you could look at that issue as well.

The Chairperson (Mr O'Toole): We can discuss that when we summarise actions.

I have a couple of points to make on things that have arisen over the course of our inquiry. One is on cross-border banking. A few weeks ago, we had in front of us the Rural Community Network. The representative who appeared is based in Jemma's home county of Fermanagh, which has come up already today. She talked about the challenges for frontier workers but also for organisations like charities. This is a question for all of the banks, but I am particularly interested in the views of the two cross-border banks. I have heard it anecdotally in other situations — and Brexit may be a factor — but the clear feedback that we got is that it becoming harder, not easier, for (a) frontier workers who perhaps live in the North but are self-employed and do most of their work in the South — they may be a PAYE employee, or they have whatever arrangements — and (b) businesses and, indeed, charitable organisations that require a more seamless cross-border banking offer or both a euro account and a sterling account. We have heard that all of that is becoming harder. Will Brian and George, first, give brief observations on whether that is becoming harder and what is being done to resolve it?

Mr Gillan: As a group, we have a footprint on both sides of the border — in Northern Ireland and the Republic. It can arise, particularly with a mortgage where you have a single applicant or joint applicants, depending on where their employment is. Certainly, on a cross-border mortgage, we can provide it, but we are looking at whether, on that euro versus sterling piece, there is a better way of providing the service to the customers who need it.

There is no challenge for a Northern Ireland resident in opening an account in the Republic, but, post-Brexit, there are challenges for an ROI resident in opening an account in Northern Ireland. Again, we are looking at that.

The Chairperson (Mr O'Toole): What are those challenges precisely?

Mr Gillan: It is complex: it is about reverse solicitation and CBI regulation versus Prudential Regulation Authority (PRA) regulation. I will revert to the Committee with the exact details.

Mr Higginson: I will make a couple of points that build on what Brian said. The mortgage piece is particularly difficult for workers.

The Chairperson (Mr O'Toole): Is it more difficult than it was 10 years ago?

Mr Higginson: No. It changed when mortgage regulation came in. I will look to my UK Finance colleagues to clarify the exact details of that, but it has been with us for a long time. Since post-mortgage regulation came in — I think that it was the markets in financial instruments directive (MiFID) before — if it is a foreign currency mortgage, extra considerations need to be taken because you have to allow for the fluctuation in the exchange rate, which is part of the issue.

The Chairperson (Mr O'Toole): That is particularly hard if you are self-employed, I presume.

Mr Higginson: Yes, because you have the variation in the income and the variation in the currency exchange. You must have a methodology to do that conversion, and you have to do it on an ongoing basis — you basically have to reassess the mortgage all the time. We are looking at doing something on that. We will do it on a product to which it is very specific and where we can keep a close eye on it.

We offer business accounts, in the UK and Northern Ireland, in both currencies. We also offer business accounts on both sides of the border. We help to facilitate that for our customers here but put it on the books in Dublin. It is accommodated in that way

The Chairperson (Mr O'Toole): OK. That is helpful.

Mr Crimmins: I have a couple of points, Chair. You referenced Ulster Bank's decision, about three years ago, to close down its operations in the Republic of Ireland. That was a sad day, but it was for reasons that have long been set out. That has somewhat impaired our ability to operate on an all-Ireland basis. That said, we can still provide a cross-border mortgage if the applicant is resident in and has an account that is based in Northern Ireland. We can still do that, subject to the issues that George just outlined.

Subject to regulatory requirements, we can still support customers who are based in Northern Ireland and want to invest in the Republic of Ireland for business ventures, but the regulations for that are pretty tight [Inaudible.]

The Chairperson (Mr O'Toole): It probably would have been easier prior to that, when you were a separate entity on both sides of the border.

Mr Crimmins: When we still had a presence in the Republic of Ireland, and prior to Brexit, when we had passporting licences, we could operate in both jurisdictions almost seamlessly.

The Chairperson (Mr O'Toole): It has now been made harder to offer cross-border financial services.

Mr Crimmins: It is now subject to non-solicitation rules whereby we cannot originate business in the Republic of Ireland, so business has to come to us proactively.

Mr Leonard: It is a complex and live area: we had a question on it from the Economy Minister in the past few days, which I am looking into. That question is more from the point of view of businesses.

There are two regulatory environments here, which is an unfortunate consequence of Brexit. There is a concept called passive servicing whereby, if an account is open, it can still be serviced. Selling services cross-border is, however, complex. A lot of UK banks are not licensed to sell, and opening a current account could be viewed as selling. It is a complex area. I am looking at the SME bit in order to answer the question from the Economy Minister — I think that he was asked it in the Chamber. There are ways and means to get around it, but it is not easy.

The Chairperson (Mr O'Toole): It would be helpful for us to have that information as and when. Cross-border banking is not the sole focus of the inquiry, but it is a component of it. That is particularly relevant to border communities and businesses, but also for the economy writ large.

My final question is around the law that was just passed in the Dáil that effectively enhances and tightens the rules on access to cash. Were an equivalent law to be passed north of the border, George and Brian, do you think that the northern banks would be supportive of it? I am springing that question on you slightly. You may not have seen the legislation, but you may be aware of it. It has just been passed.

Mr Gillan: My answer will be short: I am not aware of the legislation, so I would have to take that question away.

Mr Leonard: In my read of it, it was similar to —

The Chairperson (Mr O'Toole): The 2023 Act.

Mr Leonard: — the scenario in the UK. I read it as being almost —

The Chairperson (Mr O'Toole): Almost identical.

Mr Leonard: — a case of catching up.

The Chairperson (Mr O'Toole): OK. Fair enough.

Mr Higginson: We have experience of that. Our Republic of Ireland colleagues in our parent bank come to us to gain our experience on banking —

The Chairperson (Mr O'Toole): If it is the same as the 2023 Act, that is fair enough.

Mr Higginson: Yes. We have experience of that. In fact, those colleagues look to us because of our experience from the past couple of years.

The Chairperson (Mr O'Toole): OK. That is helpful.

Ms Forsythe: I will come from a slightly different perspective. I was thinking about this as you were all speaking. It is a question around personal banking, visibility and the teaching of good banking habits. I am thinking particularly of children who are coming into banking and of the lack of visibility of banks. We are in a cost-of-living crisis and trying to teach people good practices. I remember going along with — I declare an interest — my Henry Hippo savers book. [Laughter.]

That used to be the practice: you went up to the bank. I see it: you do not really have access to those things through banking hubs, such as the one in Kilkeel, which is local to me. When you do not have that visibility on the high street, it is difficult to breed thinking about what banking is. I would be interested to know UK Finance's perspective and that of the banks on how you link with schools to teach those practices to children from an early stage.

Mr Leenders: Across GB, we have had a fairly successful federated strategy. What I mean by that is that individual brands have pursued the areas where they thought that they had the strongest presence. NatWest, for example, has been significantly involved in secondary education. Barclays, with its Digital Eagles programme, has taken a slightly different slant. Santander has gone into universities as an international banking group.

The question has been raised at the Financial Inclusion Committee, of which we are a part. We are keen that, through the England and Wales curriculum and assessment review, it be added to PSHE education as a curriculum requirement. I absolutely accept that that covers only one component of the overall population and that there are significant needs across the population. Noyona Chundur, the chief executive of the Consumer Council for Northern Ireland, has been proactive on, which I support, ensuring that the Financial Inclusion Committee and any work on financial education are, as far as possible, replicated in Northern Ireland. There are different education structures, however, so we will have to work through the detail.

Mr Higginson: It is a good point, Diane. As I was trying to say earlier, we need to look at banking as being much more than just branches. Since our branch footprint has reduced, we have invested heavily. We have just taken on another five people to be based in the community and doing this, as well as our central team. I have two points that relate exactly to your question. We have been a supporter of Young Enterprise Northern Ireland for over 10 years, and, because of its funding constraints, we will raise additional funding for it and keep it going

funds. We have also worked with schools for many years. We have done over 4,000 hours of training for children in schools, right down to primary level. That includes funding and putting our staff into the schools to work with them. It is a valid point, but we do not talk about it enough.

Ms Forsythe: Thank you. The visibility of banks is so important. On Kilkeel high street, two big, historic buildings are empty. We do not want banking to be just a part of our history. I thank you all. Whilst we cannot walk down the high street and see branches of all your banks there, that you are visible here as part of the Committee's inquiry sends a strong message.

Dr Aiken: I have a quick question. When will the Government completely divest themselves from NatWest?

Mr Crimmins: This calendar year, most likely. The shareholding is down to less than 5%.

Dr Aiken: We own only 5% of you now?

Mr Crimmins: Yes, 5%.

Dr Aiken: OK. Fine. You will be fully private.

Mr Crimmins: The plan is to return to full private ownership during this calendar year.

Dr Aiken: OK, thanks.

The Chairperson (Mr O'Toole): It would be remiss of me not to ask the people in this room a specific question on the economic situation. We are seeing market turmoil. There was, to put it diplomatically, a profound moment in the past week when the US implemented tariffs. There is a trade war between the US and China, certainly, and between the US and many other states around the world. I will not ask for people's general commentary on all that chaos. I am interested in whether you have heard specific observations from your business clients in this region who, on the back of that, are concerned about making plans — to the extent that they can make plans; we know that the chaos and uncertainty mean that it is probably impossible to even do contingency planning, let alone plan longer-term investment. I am interested in any specific feedback that the banks have had from local businesses about their plans. It would be wrong to have a session with the banks without getting your perspective on that.

Mr Gillan: We have had not had anything specific yet — it is early days — but uncertainty and volatility do not bode well for business customers as regards their capital investment. On the positive side — if we can find a positive in this — Northern Ireland businesses are resilient. We have stepped through Brexit and COVID, so, if we can bring some certainty to the playing field, I think that businesses will navigate their way through it.

Mr Higginson: Our experience so far is that there has been a lot of volatility in the swap markets for building mortgages, so mortgage rates are up and down. We need to get that settled a bit; we need a few days to see what is happening. There is worry about inflation costs and the dumping of products that cannot get to America back into the markets. We need to watch and see where that comes out. Overall, you might see an acceleration of local business customers sitting on cash for a while and not taking opportunities to grow, while they wait to see if it settles.

Mr Caldwell: We are hearing a similar story from our business customers. It is very early. We are resilient. It is interesting to note that the new National Insurance contributions kicked in this month as well, so businesses have an additional burden on top of that turbulence. We will keep monitoring it. We are there to support: that is the message.

Mr Crimmins: It was timely that, last Thursday, the Northern Ireland Chamber of Commerce and Industry had its annual economic conference at the Galgorm. That was a good opportunity to hear from excellent panels of speakers. Obviously, the current situation was one of the topics of discussion. Overall, the sense was one of pause and reflect and, "Don't panic". Interestingly, the priorities were the traditional issues — skills, infrastructure and the climate — so it was not top of the list at that time. We have good muscle memory from previous recent crises. Our role in this is not to panic and to pause and reflect. For the time being, it is business as usual for us.

Dr Aiken: That was before US bonds hit 4·5%.

The Chairperson (Mr O'Toole): It was important to get those perspectives on the record.

We acknowledge that you have all turned up: you are not, in a policy sense, obliged to be here, because financial services are not devolved to this institution. However, there is a ministerial banking round table. There is also a context — I think that it was reflected in our evidence today — which is that we have a distinct set of needs in Northern Ireland. Historically, our banking sector has had cross-border links. That context has changed over the past decade, as we have discussed. I must say, with the greatest possible respect, that we also have banks that have a shareholding by a Government in London or Dublin: even if it is a dwindling shareholding, it is a shareholding. It was important, therefore, that we had this session today. It enabled taxpayers and users of banking services in Northern Ireland to see their representatives ask questions about the specific personal, commercial and business banking context in Northern Ireland. We have lots of homework to do, which we will follow up on via UK Finance or individually. We may follow up with you on specific queries about our findings and questions that have arisen today. The session has been most useful. Thank you, all, for your time. Cheers.