Donohoe: New 'broad-ranging' banking review will consider consumer interests

Minister Donohoe said the review will also weigh any submissions on the caps on bankers' pay in the context of difficulties of attracting staff into the industry. He said he had no plans to change banking pay remuneration. File Picture: Julien Behal No Fee

The Government is putting together a panel for a "broad-ranging" review that will consider consumer interests into the way the banks deal with their mortgage and small business customers.

Finance Minister Paschal Donohoe said the review, which will take 12 months, will focus on retail banking - current accounts, saving accounts, consumer and small business credit - as well as look at ways to open up the mortgage market and to try to learn from what other small countries are doing.

The review will also consider the implications for the so-called fintech and digital transaction providers are playing in disrupting traditional banking.

"Retail banking has been undergoing a period of significant change over the last decade, due to difficult economic circumstances at the start of the decade and the advancements in technology and fintech in recent years," Minister Donohoe said.

Minister Donohoe told reporters he expected the review to hear from An Post and other lenders such as the credit unions. He also highlighted legislation to strengthen consumer protection and accountability of senior bankers.

The panel of the new review will be led by a senior official at the Department of Finance, he said.

The review comes as high-cost banking loans for mortgages and small business loans in the Republic face another crisis as the already low levels of competition is set to dwindle.

The big two lenders, AIB and Bank of Ireland - which dominate banking in the market - as well as Permanent TSB, the third-largest mortgage provider, are set to tighten their grip further when Ulster Bank and KBC complete their withdrawal from the Republic next year.

The Government still owns significant shareholdings in three banks, AIB, Bank of Ireland and Permanent TSB.

Minister Donohoe said the review will also weigh any submissions on the caps on bankers' pay in the context of difficulties of attracting staff into the industry. He said he had no plans to change banking pay remuneration.

The Competition Commission said last month it will conduct a full so-called Phase 2 probe into the plans of Bank of Ireland to acquire almost €9bn in mortgage loans from KBC, as the Belgian-owned group aims to be gone by the second half of next year.

Experts expect the Competition Commission to investigate in similar ways the plans by Permanent TSB to take on most of the mortgage loans, and for AIB to acquire the commercial loans, from Ulster Bank, which is owned by Britain's NatWest.

Minister Donohoe said that like in many other countries Ireland would likely struggle to attract new lenders because of the large changes taking place in international banking.

The Government had been urged to put the bad deal customers are getting from their home loans, and cash-back mortgages in particular, at the centre of its new review.

A banking review or forum has long been championed by the Financial Services Union. It secured political support in the Dáil and at Stormont earlier this year for any such review.

However, consumer advocates, including the Consumers’ Association of Ireland, have said that the Government must put consumers first.

And mortgage brokers and business groups have long highlighted that Irish banks offer their customers among the costliest mortgage and small business loans in Europe.

Senior broker Michael Dowling last week said the relatively large amount of capital that lenders in the Republic are obliged by the Central Bank to set aside to cover the risk of mortgage loans turning sour will need investigating.

Ulster and KBC have both said they cannot generate sufficient returns on the capital they had put into the Republic compared with elsewhere in Europe.

Mr Dowling had also highlighted "the difficult" conflict of the Central Bank acting both as consumer arbiter and as guardian of the banking system and its solvency.

Other consumer advocates have in the past said the way the mortgage banks discriminate against long-term customers and by offering first-time borrowers, in particular, costly cash-back mortgages, are huge problems in Irish banking.