Scots a good addition to Irish banking

THREE cheers for Bank of Scotland Ireland. At last we may have the prospect of some real competition in the Irish banking sector.

While the 400 ESB workers affected may not be cheering, it is fair to say that BoS has put its money where its mouth has been.

When it failed to buy National Irish Bank it looked as if it might never emerge as a challenger to the major banks deeply embedded in the Irish market.

This has been rip-off banking territory for quite some time.

One simple sum. Credit card interest charges are as high as 18%. Banks borrow at a little above the key ECB rate of 2% and lend on in the case of credit cards with a 900% mark-up.

Overdrafts at around 11% are carrying a 500% mark-up and so on.

The banks have it every way. Depositors, unless they have serious money, are losing out every day they keep money with the banks.

Overall banking has not been a happy experience for the Irish consumer.

It’s difficult to fathom the decision back in the mid-’60s to allow the formation of two super banks.

Why was it allowed to happen looks an obvious question at this stage, but times were very different.

Back then the bank manager, the parish priest and the local headmaster were the three pillars of the local community.

Then expectations started to change triggered by initiatives under Seán Lemass, then Taoiseach. He saw banks as a key part of economic development.

The banks have been important to the evolution of what we enjoy in economic terms, but they have not been serious risk takers.

And their share of the spoils of the economic boom is, in that sense, undeserved.

On the back of that boom they make huge profits while the State or outside investors have to provide venture capital funding to help keep us at the cutting edge.

AIB could blow $690 million in the US, come back with bumper profits the following year and pay its senior executives generous bonus packages.

Finally BoSI, Danske Bank and indeed Royal Bank of Scotland, which owns Ulster Bank and First Active, will start to give the AIB/Bank of Ireland duopoly a run for its money.

RBoSI chief executive Mark Duffy and his bosses in Edinburgh showed nerve in walking away from the NIB deal that cost Dankse €1.4 billion.

Mr Duffy said it was too much and when Danske considers what he has bought for 140m, admittedly without a customer base, they may turn a little queasy.

But Danske is a formidable group in its own right too and, undoubtedly, help shake this market up for good measure.

The real point in all of this is the willingness of two foreign banks to enter the Irish market.

To have any chance of success both know they will have to undercut what’s on offer here from the big players who, between them, have about 70% of the current account market and substantial mortgage market shares on top of sizeable corporate business .

BoSI has already demonstrated it has the capacity to undermine existing players.

Its surprise entry to the Irish mortgage market in 1999 exposed the smug cartel. As a result, mortgage rates were cut by 1.5% as lenders here moved to hold on to customers.

The end result is a significant €500m annual saving on mortgage repayments, a €5bn saving over 10 years.

Before that, the banks insisted they could not afford to lend at lower rates and survive. While the Scots have been selective, their impact on the market has been huge.

Those doubting its ability to cause further havoc for the big boys are not reading the script right.

This is the best thing to happen to Irish banking.