Wednesday 17 January 2018

Richard Curran: Banking sector still has a long way to go

Much of the media attention around banking in recent days was on the outcome of a recent balance sheet assessment exercise.

The good news was that Irish banks don’t look like needing any more of our money any time soon. A little discussion between Bank of Ireland and the Central Bank over the former’s provisioning for losses, is actually academic.

Provisioning for losses is not a science and as long as Bank of Ireland doesn’t need more money from us, then it is a matter for the bank, its shareholders, and to a certain extent the Central Bank.

The fact that Bank of Ireland’s shares fell by very little might reflect the fact that investors are confident with the provisioning levels or they believe they can be sorted over time without blowing things up on the balance sheet.

A similar provisioning question mark for AIB or Permanent TSB would be of greater concern because they are in state hands. We will have to wait and see whether it is an issue at these two banks.

When it comes to something more relevant for Irish consumers and SMEs, Central Bank governor Patrick Honohan’s comments at a conference were more instructive.

Patrick Honohan
Patrick Honohan
The Central Bank on Dame Street

 He outlined, in a fairly broad way, how he saw the banking sector evolving here in the future.

He saw it as a three way split: with multinational business and very wealthy individuals served by a few big international banking groups, then a group of Irish owned banks focused on serving the middle market with an emphasis on Irish SMEs, and finally a community banking sector serving small and micro-businesses and lower income individuals.

The nouns are the most interesting here. A “few big” international banking groups – how many is that? Then there was a “group” of Irish owned banks serving the middle market. That middle market is you and me. How many might be in that group? I wonder does “two” qualify as a group or is that a “couple” or a “pair”.

Then there is a community banking sector, which is also hard to gauge in numbers.

Honohan outlined in some detail how he sees the credit union movement consolidating into several dozen larger credit unions instead of the 400 or so that are there now.

This is an inevitable process but it remains to be seen how local those credit unions will be. Anyone looking for comfort from Honohan’s remarks about the future of the banking sector will not have found it. There will be very little competition and there is a risk that the best-served customers will be those multi-nationals and high net worth individuals.

The middle market will be down to a virtual duopoly and the lower end of the market will see less choice but hopefully greater financial stability.

It is not a banking landscape that seems capable of being a major driver of the economy. Steady and slow with very little competition seems to be the picture.


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