EQUITY Bank will extend its direct banking operation, targeting consumer lending of £10 million in its first year and creating 100 new jobs within three years, following a successful pilot study carried out over the past year.
Reporting a 50 per cent rise in pre tax profits to £3 million for the year to the end of February, chief executive, Mr Mark Duffy said Equity Bank Direct would have the advantage of technology developed by its Bank of Scotland parent over the last 10 years.
Equity Bank Direct will offer personal loans to existing bank customers, affinity groups and captive databases. The average loan is expected to be less than £5,000.
"We will talk to clients when and where they want. Other direct operators are offering an inbound reactive service. We will offer an outbound pro active service underpinned by technology developed by Bank of Scotland group subsidiary NWS Bank as well as an inbound service. The technology has been adapted for the Irish market," according to deputy chief executive, Mr Richard McDonnell.
The business will be built up through forging relationships with affinity groups such as charge card groups and other groups with client databases.
Equity was interested in mirroring its parent bank's development of joint venture arrangements with retail groups such as Next, Marks & Spencer and Sainsbury, and with professional bodies, Mr Duffy said. A number of "relationships" have been signed up, he said, declining to disclose those arrangements at this time.
Losses are expected in the first two to three years as the business developed "a solid base", he added. The key to success would be customer retention and profit generation from the database, he said.
Market surveys and the pilot showed good demand for business that would be conducted to suit the client, he added. Interest rates would be competitive but, rather than start an interest rate battle, Equity would use technology to sell its products in a cost competitive way, he said.
In the year to the end of February, Equity Bank advanced gross new loans of £200 million, up from £92 million. Commercial lending increased by 68 per cent to £111 million, asset financing rose by 58 per cent to £41 million while the new trade finance operation advanced loans of £48 million in competitive markets lending margins narrowed. Margins on commercial loans were down to 2.27 per cent from 2.31 per cent while margins on asset finance business fell to 3.8 per cent from 4.4 per cent. The profit margin on the low risk trade finance business was 1 per cent.
Gross income increased by 41 per cent to £20.1 million boosted by a 60 per cent increase in fee income to £1.77 million. Interest costs were 34 per cent higher at £12.7 million. Equity's operating profit rose 54 per cent to £7.4 million. Costs were 67 per cent higher at £3.6 million pushing the cost/income ratio up from 45 per cent to 48 per cent.
The rise in the cost/income ratio came in a year when the new trade finance business was developed, a branch was opened in Belfast and then merged with NWS Bank's Northern Ireland operation and the direct banking pilot was set up, according to Mr Duffy. "At under 50 per cent the ratio is very competitive," he commented.
Bad debt provisions were 29 per cent higher at £808,000 reflecting the higher volume of lending. At year end, Equity had increased deposits to £160 million.
Total assets were up to £307 million from £210 million, and shareholders funds were £16 million. The bank recorded an 18.8 per cent return on shareholders funds and a return of 0.98 per cent on total assets.
With substantial funding in place, Equity is planning strong growth as a niche player in the market. It aims to increase total assets to close to £500 million by the end of the current year. On funding, the bank has a £125 million credit line from Bank of Scotland as well as £50 million from the European Investment Bank.
With the support of its parent bank, Equity was in a position to take advantage of acquisitions or joint ventures opportunities, Mr Duffy said.
