Lenders back making profits by taking consumers for a ride
Published 09/08/2014 | 02:30
A lack of competition in the financial sector is allowing our banks to make off like bandits.
New figures from the Central Bank show that we are paying more for new mortgages and personal loans than the average across the 18 countries that use the euro.
So much for the currency union bringing about a situation where the cost of financial products converge.
Our banking system has shrunk since the financial downturn struck in 2008.
Competition has been seriously weakened with the disappearance of the likes of Bank of Scotland/Halifax, Postbank, Irish Nationwide and the forced takeover of EBS by AIB.
All of this has allowed the big two of AIB and Bank of Ireland to dictate the pace on mortgage rates, bank charges and savings rates. The big two banks issue more than half of all mortgages, and have the most current account customers at about 1.2 million each.
Only Permanent TSB and KBC Bank are attempting to challenge them with better offers on mortgages and current accounts.
But inertia and over-indebtedness means that consumers either will not, or cannot, switch to avail of better-value banking services. So we stick with the high-charging bank where we first opened an account with our Holy Communion money.
Little surprise then that AIB and Bank of Ireland announced last week that they have both returned to making profits.
Having bailed them out, we are also helping them back to profitability by paying through the nose for their services.
The mortgage rates being charged in this market are obscene. The average variable rate of 4.5pc is higher than the average in the eurozone, and 30 times the European Central Bank rate of 0.15pc.
Further boosting the profitability of banks has been their ongoing cutting of the interest they pay on deposits.
It is two years and three months since banks last raised the interest rates they pay depositors.
And the bad news is that the pain being inflicted on us by the banks shows no signs of abating.
Unfortunately, the attitude of the Government and the Central Bank seems to be let them at it.