Are critics too quick to judge Scotland's investment bank?

That the bank made a loss was in large part down to its exposure to Circularity Scotland, the company which was set up and funded by industry to operate the country’s doomed deposit return scheme (DRS).

Circularity Scotland fell into administration in June of last year when the Scottish Government kicked the DRS into the long grass, following a high-profile dispute with the UK Government which declined to amend the Internal Market Act to allow it to go ahead.

That came after industry groups had repeatedly raised concerns over the workability and costs of the scheme.

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The collapse of Circularity Scotland meant SNIB lost its investment of £8m in the company which, alongside unrealised losses of £9.8m on the revaluation of investments, took the company into the red in its last financial year.

Critics of the bank, who have questioned the purpose of its existence, may point to the loss as another example of the nascent institution’s failure to deliver.

They may also say it is an illustration of flawed policy-making on behalf of the SNP Government, which launched the bank with a £2 billion war chest of public money to be invested over 10 years. Especially given the bank’s chief executive, Al Denholm, received bonuses of £88,902 as part of an overall remuneration package worth £335,302 for the period covered by the latest accounts. Mr Denholm receives an annual salary of £240,000 and received £220,000 in basic pay for the period between May 1, 2023, when he started in post, and the bank's year-end of March 31, 2024.

The loss recorded during Mr Denholm’s first year in charge followed a particularly damaging episode which centred on the departure of its first chief executive, who left the institution abruptly and, initially at least, with no explanation in February 2022.

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Eilidh Mactaggart eventually released a statement citing personal reasons for her departure, but not before a damaging information vacuum had been allowed to kick in. Ms Mactaggart was eventually succeeded by Mr Denholm, an investment industry veteran of nearly 40 years, as full-time chief executive in May last year. One of his first tasks was to appear before MSPs to answer questions on the bank’s investment in Circularity Scotland.

With such a troubled early history, it would be easy to form a negative impression of the bank and its worth to the Scottish economy. But doing so would be premature, especially when green shoots are emerging at the still-young institution.

The accounts published by the bank this week showed that the investment income it generated over the period exceeded its costs for the first time, with Mr Denholm expressing hope that income will continue to rise as its investment portfolio steadily expands.

SNIB’s income surged by 80% to £19.3m as it booked operating costs of £16.1m, lower than anticipated.

Mr Denholm, who in a long investment career has worked for major institutions such as Aviva, Prudential, BlackRock, ING, and Scottish Widows, declared the bank was in “good shape”.

“We are moving from start-up, beginning to mature and becoming an increasingly established organisation,” he told The Herald. “For example, our income was up 80% to £19m, so in the 2023/ 2024 year we covered our cost base which was £16m, so that was positive.

“Clearly, as the portfolio grows that income should continue to grow, so hopefully it is a sign of things to come.”

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It is important to reflect on the reasons why the bank was brought into existence, and the progress it is making with regard to its core remit.

The SNIB was founded to provide development capital to Scottish firms engaged in addressing three major missions: tackling place-based inequality, the drive to net zero, and stimulating innovation.

Speaking to The Herald on Tuesday, Mr Denholm said the bank has now deployed around £650m of investment into a portfolio of 35 companies, each of which is aiming to make a difference in terms of some of the biggest challenges Scotland faces today.

Highlighting examples such as Ardersier Port east of Inverness, where SNIB and the UK Infrastructure Bank are investing £50m each to support its regeneration, he noted that investments provided by the bank have so far helped companies create around 1,850 jobs.

The bank’s support of Thriving Investments (formerly PfP Capital) has also helped fund the development of 649 affordable homes for rent. This may be a drop in the ocean compared with the overall need for new housing in Scotland, but there are plans to step up activity in this area.

Mr Denholm said the sums of money which are being deployed are “beneficial” to the investees and underline the “impact” they are making at a societal and economic level.

“We are making good long-term investments, whether it be Ardersier up near Inverness, Cumulus Oncology, growth investments, housing investments, [or] infrastructure investments – it is all adding value and aligned with our missions,” he said.

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“I’m really excited also by the fact that, as a CEO, we are really starting to mature and hit our stride. We have good people and the right engagement and a really strong culture and a motivated team. We are really making a difference to Scotland.”

Having been the subject of so much scrutiny, and criticism, in its early days, it has not been surprising to see opponents move quickly to point the finger of blame for the loss reported by the bank this week.

Daniel Johnson, economy spokesperson for Scottish Labour, declared yesterday that the bank was being “held back by SNP economic incompetence”, citing the £8m loss arising from its investment in Circularity Scotland.

Of course, writing off that amount of public money is always going to be a matter of regret, and all the more so at times like these, when government budgets are under so much pressure. It will only be over a much longer time-frame, however, that we can really judge if the SNIB has been a success or not.