What comes next: The future for banking & finance in Northern Ireland

Partners Richard Houliston and Caroline MacLaughlin from TLT, a leading advisor to the banking & finance sector, comment on the potential future of the banking sector in Northern Ireland.

In 2012, London hosted the Olympic Games and everyone marvelled at the opening ceremony directed by Danny Boyle.  Barack Obama was elected for his second term as US President and the late Queen celebrated her Diamond Jubilee.  Now standing in 2022 we look forward to 2032 and consider the key trends that might have taken hold in the banking sector in Northern Ireland.

In 2032 - a fully diversified lending ecosystem  

Traditional banks continue to have a tight grip on business and corporate lending in Northern Ireland in 2022.  But the alternative lenders are growing in number and volume.

Whilst in 2022 there are multiple funding options across a range of different product types, there remains a predisposition to a single banking supplier in Northern Ireland.  The battleground is set for debt mandates over the next decade, but who will win between established financial institutions and alternative lenders?  Established banks are changing – over the next ten years they will develop into brands with a sharper focus on inclusivity and environmental concerns at the core of their businesses.  The agile light-of-foot alternative lender will have to battle the newly assertive and more focussed established bank that will deploy greater resources to transacting quickly, the age-old weapon used by the alternative lender.

In 2032 borrower attitudes have changed and there is an openness to multi-lender / multi-product finance options across a range of platforms chosen by the borrower on suitability for its particular business.  This outcome depends on the banks re-imagining and delivering on inclusivity, ESG and long-term goals which will build a strong customer trust.  And on the alternative lender side, they continue to invest in Northern Ireland with more teams having boots on the ground plus a broader spectrum of credit appetite.

John Mathers, corporate development director, Barclays Bank, says: “The NI banking market has changed a lot over the past decade. First we had the global financial crisis which caused quite a shift in the composition of our local market, with challenger banks such as Barclays growing their market share significantly.  More recently, the pandemic has accelerated the move from cash to electronic payments, which has meant that those banks with the latest digital solutions are at a distinct advantage over others with more legacy systems.  We’re now also seeing ESG starting to play a much bigger part in business more generally, and again this is another growth area for banks to support their clients.”

Shane Donnelly, director, Ortus Secured Finance, says: “Since opening our office in Belfast in 2019 our business has gone from strength to strength.  We now have a team of 5 people on the ground in Northern Ireland who are working hard to provide specialised short term finance options for our clients secured on property.  Northern Ireland continues to be a vibrant place to do business and we remain excited about our growth plans locally.”

Ciaran McLaughlin, head of business development, Belfast Commercial Funding: “We are the first non-bank lender to be founded in Belfast.  Having already deployed >£40m in lending volumes, we see significant growth opportunity, continuing to support development, bridging, agriculture and SME funding requirements for local borrowers.  As the only indigenous lender, we are passionate about recycling capital within the province to create job opportunities, provide homes and ultimately enhancing the NI economy.”

In 2032 – a top-to-bottom lending ecosystem with ESG at its core

We continue to find green and sustainability-linked loans to be the preserve of high value corporate grade lending in Northern Ireland in 2022.  There are many barriers to overcome before green finance can be considered mainstream. However by 2032 it’s likely that all finance in Northern Ireland will have an eco-friendly element to it. This is being driven by the wider ESG agenda.  As more businesses set ESG-related targets – for example, related to greenhouse gas emissions, renewable energy, employee diversity or business ethics – over the next ten years demand for green finance will continue to grow.

One of the key blockers to the growth of green finance in 2022 in Northern Ireland is the ability for mid-market corporates to appoint qualified experts to help shape strategy and drive plans forward.  Whilst large corporates have the resources to appoint an experienced, dedicated, C-level or non-executive expert in green finance to support them – those deeper pockets don’t extend all the way down the corporate scale.  On the lender side, qualified experts in green finance are in short supply and high demand in 2022.  As Northern Irish financial institutions continue to work on building a strong proposition in green finance, it will be crucial to have a strong, influential voice at the top of the business, and that this filters its way down to customer-facing teams.

Fionnuala Brennan, relationship director, AIB: “Sustainability is at the very heart of our business.  The greatest way we can impact the Northern Irish economy is by supporting our customers and helping them transition to a low carbon future. We have also announced our ambition that green and transition lending will account for 70% of new lending by 2030.  This commitment means that we will be increasingly financing more of the activities that are better for the environment and fewer of things that do harm – supporting our customer every step of the way on this journey.”

At TLT we lead by example. We have a commitment to achieving net zero greenhouse gas emissions by 2040. Our journey is being verified by the Science Based Targets initiative (SBTi), a partnership between climate and science organisations.  We are no different to any other business out there – those that don’t take action now to put ESG at the core of their operations will miss out on the growing opportunities that will be available in a maturing green finance marketplace in 2032.

With a joined-up effort the financial services community can drive forward positive change over the next ten years by embedding green finance processes and procedures in their businesses.

In 2032 – transactional lending in Northern Ireland is fast paced; digital and a trend-setter for other UK jurisdictions

Given the office foot-print across the UK we are well placed to see the differences between how lending deals are transacted in Northern Ireland, England and Scotland.  In 2022 it is noticeably slower to transact in Northern Ireland by comparison to other jurisdictions in the UK.

A huge change during and in the aftermath of covid was the rapid uptake of documents being signed electronically through platforms like Docusign.  The Land Registry in England quickly adopted practices which allowed for contracts and security documents to be executed electronically and have a system for e-filing. By comparison the Land Registry in Northern Ireland does not accept electronically signed documents, and additionally practitioners in Northern Ireland still have to submit paper applications to the NI Land Registry.

In 2022 it can take up-to four weeks for solicitors to receive certain property searches from statutory bodies, and complex planning applications can take upwards of 18 months for approval. When you couple these wait times with an outdated land registration system and a failure to adopt modern signing mechanics, we have a challenging system to work with in Northern Ireland. 

The landscape in 2022 on this issue is not hugely promising.  The issue is one of investment and resources.  If the Executive invests in the supporting bodes (Planning; Land Registry; Local Councils etc) that provide such important services to the financial services systems in Northern Ireland, then they will have the resources to change.  We are at an opportune moment where following such investment we can re-imagine our systems and processes and not only match other UK jurisdictions but stretch ahead so we are the benchmark in Northern Ireland.  Where we take full advantage of our position as one of the fastest growing tech and fin-tech hubs and combine this with targeted investment and additional resources in 2032, we have a streamlined transactional lending eco-system with electronic execution and e-filing at its core – there are, for example, policy issues allowing key developments like large scale social/affordable housing schemes to have fast-track priority on other non-essential applications.  Being able to transact quickly and benchmarking ahead of our peers in Ireland and the rest of the UK gives Northern Ireland the competitive edge on things like foreign direct investment.

Herbin Duffield, director, CBRE Investment Advisory, part of CBRE Capital Advisors that manages the Northern Ireland Investment Fund said: ““We expect considerable change in the debt landscape over the next decade which should improve the availability of debt for commercial development projects to grow the economy in Northern Ireland.

“However, intervention and impact funding will continue to play a vital role in times of fiscal uncertainty as the lending market takes time to fully evolve and adapt to economic changes, together with a renewed focus on ESG.

“CBRE manages the Northern Ireland Investment Fund (NIIF) for the Northern Ireland Department of Finance. Launched in 2018, NIIF provides development debt finance for commercial property and regeneration projects in Northern Ireland at commercial rates for schemes unable to secure sufficient debt to be deemed viable.

“Such is its success, much of the fund’s initial £100m capital is committed. However, there is still some capacity to support projects that meet the fund’s key priority areas of; new employment space to create jobs, energy efficient developments/low carbon projects, tourism, infrastructure and land regeneration.”

Conclusion - 2032 – a vibrant, diverse and forward-looking financial services environment

We remain optimistic for the future of the financial services sector in Northern Ireland, as do our clients.

With:

• re-focussed investment in our supporting statutory bodies
• refined policies on ESG
• a re-invigorated and engaged Executive

The financial services landscape in 2032 could be much changed and be a benchmark against other localised jurisdictions giving us a much-needed edge in a competitive marketplace.

This article was first published by Belfast Telegraph.