Bank crisis kills prospect of rivals challenging AIB and Bank of Ireland, experts warn

The big two Irish lenders also profited from acquiring billions of euro in deposits and performing loan books following the exits of Ulster Bank and KBC Bank last year

In Ireland, bank shares of the dominant lenders AIB and Bank of Ireland, which had fallen sharply along with European peers last week, rebounded on Monday following the buyout of Credit Suisse. Picture: Artur Widak/Reuters

Global banking turmoil has killed off the prospect of rival lenders entering Irish banking any time soon, and will likely strengthen an effective duopoly here at the expense of households and businesses, experts have warned. 

European banks continued to be under scrutiny following the €3bn weekend shotgun rescue of Credit Suisse, one of Europe's largest lenders, by fellow Swiss giant UBS. The banking crisis erupted a week ago with the collapse in the US of Silicon Valley Bank, and the closure or emergency funding required by other US lenders, as depositors fled stricken banks.    

Troubled Credit Suisse and Silicon Valley Bank were, surprisingly, caught out by the huge jump in interest rates by global central banks in the past year. 

In Ireland, bank shares of the dominant lenders AIB and Bank of Ireland, which had fallen sharply along with European peers last week, rebounded on Monday following the buyout of Credit Suisse.     

The big two Irish lenders, which already had a strong grip over home loans and business banking, had profited further by acquiring billions of euro in deposits and performing loan books following the exits of Ulster Bank and KBC Bank last year. 

However, economists and market experts say that paradoxically the European and US banking market crises could in the end favour AIB and Bank of Ireland, but at the expense of customers paying more for their mortgages and business loans.                                         

Danger of duopoly

Stephen Kinsella, professor of economics at University of Limerick, said there was little prospect for so-called non-bank rivals to thrive in Ireland, and new entrants will likely be discouraged as the cost of market funds has risen sharply. 

At least in the moment, it seems extremely unlikely that you will see non-banks lenders entering the market here.

Consolidation in Switzerland, with the rescue of Credit Suisse, "tells us  that new entrants are unlikely" and that new policies will be required from officials here to deal with worsening competition, he said.  

Isme chief executive Neil McDonnell, said Irish banks may likely strengthen their dominant market shares following the crisis. Isme will be telling the Government that the concentration of banking here is similar to the risks the Government has identified from the exchequer relying on multinationals to pay the lion's share of corporation tax receipts, Mr McDonnell said.

"From our end of the telescope, our beef has always been about the costs of interest rates," he said.    

Michael Dowling, a leading mortgage broker, said existing non-bank lenders in Ireland are unable to tap competitive market funding, while AIB and Bank of Ireland were "awash with money", helped by their large deposit bases. 

The dominant lenders were also earning higher margins since the European Central Bank started hiking official rates. Irish banks pay out as little as 0.1% for deposits, while charging mortgage borrowers 4% for their fixed-rate home loans, and charging businesses up to 7% for their loans, Mr Dowling said.