Donohoe to launch banking review this week

Review expected to cover the State’s shareholding in banks and the role of ‘fintech’ firms and non-bank lenders in servicing SME and mortgage lending needs

Finance Minister Paschal Donohoe has presented the terms of reference to the Cabinet.

Finance Minister Paschal Donohoe plans to formally launch the Government’s long-since promised review into the banking sector later this week.

It is expected that the minister — who, in the summer, suggested a review was forthcoming —
will announce, on Thursday, that the review will be carried out by the Department of Finance and that it will run for around 12 months.

Mr Donohoe is understood to have presented the terms of reference to the Cabinet.

The review is expected to cover the State’s shareholding in the remaining banks — while the Government has lowered its stake in Bank of Ireland to below 10% it still owns 71% of AIB and 75% of Permanent TSB — and the role of ‘fintech’ firms and non-bank lenders in servicing SME and mortgage lending needs.

The eventual findings will cover a much-changed sector, which is about to lose two lenders in the shape of Ulster Bank and KBC Bank Ireland. 

Those market withdrawals, according to Davy, have been heavily inspired by Ireland’s financial regulations.

“Irish banks are extremely heavily regulated, with mortgage macroprudential rules and materially higher mortgage capital requirements relative to other European countries,” said Davy analyst Diarmaid Sheridan.

He said some features of the regulations have “no doubt” contributed to the withdrawals from the market.

“Coupled with high regulatory fees and levies and the bank levy, this results in a sector that has struggled to generate a return — particularly the smaller banking entities. 

"Post withdrawals, Ireland will have three domestically licensed banks operating in the retail and SME market. 

"In addition, non-bank lenders now contribute significantly to the landscape across mortgages and SMEs,” he said.

“The report is expected to be wide-ranging, but publication is not due until the fourth quarter of 2022,” Goodbody banking analysts noted.

Meanwhile, the Government has said there are no plans to slow the gradual wind-down of the Pandemic Unemployment Payment (PUP), which sees further reductions to recipients' entitlements from this week.

It comes as opposition parties have called for PUP cuts to be stopped. 

People Before Profit said it was “cruel and perverse” for the Government to go ahead with PUP cuts while also outlining new Covid restrictions.

“Rather than cutting the PUP, the Government should this week restore it to the full €350 rate,” said the party’s social protection spokesperson Paul Murphy.

Labour’s employment spokesperson Marie Sherlock said the Government must immediately assuage the concerns of workers in the night economy and restore the PUP payment in its entirety.

“Workers need certainty. Their livelihoods, through no fault of their own, are effectively being taken away from them. 

"We need to prevent these workers from experiencing any further economic hardship. This news will be particularly devastating to workers and businesses as it comes at the busiest time of year for the sector,” she said.