BBA defends bank's record profits

19 February 2004
Ian Mullen, the chief executive of the British Bankers' Association, has defended the record profits that have just been announced by the Royal Bank of Scotland, which saw its pre-tax profits leap to £6.2bn.

The announcement has sparked controversy that the main banks are gaining too much on the back of consumer debt, and has raised questions about the level of competition within the sector.

Speaking on BBC Two's 'Working Lunch', Mr. Mullen said: "I would obviously contest that the banks are making their money by ripping customers off. Different banks earn their profits in different ways, but largely speaking the bulk of the profits come from the non-consumer part of their businesses."

"If banks were not giving customers a service that they required, and were willing to pay for, then they would not be making this profit. It is the same as any other firm that offers a service."

Mr. Mullen continued: "I think it is a fallacy that there is not much competition in the banking sector. We have some 42 banks that are offering retail banking services, of which 13 are very large organisations. There is fierce competition amongst those banks."

"There is also competition with the building societies, some of whom have very large economies of scale."

He added: "I think we have to look at this issue relative to other elements of society or other industries; we find that in industries generally profits have been increasing and that relative earnings per share have increased relative to those of banks."

"I do not think the banking sector is, therefore, particularly awry in respect to the rest of industry."

Mr. Mullen insisted: "I think it is the case that consumers have benefited considerably from the Government's monetary policy as overseen by the Bank of England and we can look forward with some confidence to stable interest rates. That means that people are, very sensibly, borrowing."

"The vast majority of people are benefiting considerably from this. Obviously there has been an upsurge in bank lending and banks have benefited, as have bank shareholders, but that is the normal reward for running your business properly."

He argued: "We have got to put this into context: I am currently the chairman of the European Banking Federation and I can say that British banking, in costs to the normal consumer, costs around 50% of that which it costs the average consumer in continental Europe."

Mr. Mullen concluded that 'British banking gives their customers an excellent service.'

Speaking on the same programme, however, Mick McAteer of the Consumers' Association disagreed. He said: "If we take the average customer, they do much worse if they buy their products from a big bank, certainly compared with a building society or the online rivals and so on."

"As far as we are concerned, when you see that sheer disadvantage and the sheer poor value that the banks offer, the fact that they still maintain a stranglehold on the high street is a strong indication that competition is not working amongst the banks."

Mr. McAteer argued: "There clearly has been an explosion of debt in this country. Just to give an indication of what that means, the average household owes over £7,000 and that is excluding mortgages. If someone were to pay that off at £100 a month it would take seven years to pay off that debt."

He concluded: "Clearly the big banks have played a big part in the explosion of debt we have seen in this country and I think it is about time they lived up to the responsibility they have in society and actually put something back into society."

Consumer debt in Britain has risen above £200bn, according to analysts at Datamonitor.