A review of the banking sector will be headed by officials at the Department of Finance, despite the State's dual role as biggest shareholder in the rapidly shrinking pool of Irish lenders, the Irish Independent understands.
inance Minister Paschal Donohoe is expected to bring terms of reference to Cabinet today on a long-awaited review of the banking sector, demanded in response to fears over competition and availability of credit as foreign retail banks leave the market.
The review, which will be carried out by department officials, will cover a wide range of key issues facing Ireland’s banks, including the State’s shareholding in the three remaining banks – AIB, Bank of Ireland and Permanent TSB.
Officials are also looking broadly at the structure of the sector and considering whether the growth of non-bank lenders and fintech players like Revolut can help address gaps in SME lending and the mortgage market.
A report is expected at this time next year, after both Ulster Bank and KBC Bank Ireland will have completed their withdrawals from Ireland and the State has sold most or all of its stake in Bank of Ireland.
The launch of the review, pencilled in for Thursday, comes after the most dramatic year in Irish banking since the financial crisis.
Mr Donohoe pitched the review in the Dáil in July, nearly four months after the Financial Services Union (FSU) had urgently sought an all-stakeholder forum on the future of banking in Ireland following the announcements by KBC and Ulster that they were exiting the Irish market.
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Since then, AIB, Bank of Ireland and Permanent TSB have all announced redundancies, branch closures or both, indicating a high level of disruption in the sector.
However, all three domestic banks have also materially strengthened their competitive positions and substantially restructured the sector by acquiring large loan portfolios cast off by their departing competitors.
Meanwhile, AIB and Bank of Ireland bought stockbrokers Goodbody and Davy respectively, further concentrating ownership of key financial services under a few big names.
The review was first formally discussed in September by the Financial Stability Group, a forum of senior officials from the Department of Finance, Central Bank and National Treasury Management Agency (NTMA).
It is understood the department may pull in resources from the Central Bank, the NTMA and the Competition and Consumer Protection Commission (CCPC) to complete the review, although other stakeholders such as the Banking and Payments Federation of Ireland (BPFI) and FSU haven’t yet been formally consulted.
The CCPC last month opened a so-called “phase 2” investigation of Bank of Ireland’s acquisition of KBC’s consumer banking business to establish whether the deal will reduce competition for consumers.
Bank analysts expect the remaining domestic banks to expand their franchise and improve their profitability once KBC and Ulster Bank are gone specifically due to reduced competitive pressure.
That possibility is likely to create some tension between the CCPC and the Department of Finance, which industry sources believe is comfortable with market concentration as higher profits will help the State sell its holdings in the banks.
The BPFI published its own report on retail banking in September, highlighting numerous challenges for its members including low profitability, which it said could hinder the recovery and make it difficult for the State to sell its shares in the banks.