It never rains but it pours. Given the fact that the banking sector is in the process of handing over tens of millions in unpaid taxes as a result of the DIRT audits, the last thing it needed was a report identifying Irish banks as the most profitable in the EU.

Yet that was the finding of the Dept of Finance/Central Bank report on strategic issues for the sector, published last Friday as most of us were heading off for the long weekend.

On the central issue of mergers and acquisitions, the mandarins concluded that a foreign takeover based primarily on rationalising costs was unlikely. What is considered more likely is a foreign bank buying an Irish one as part of a strategy of seeking exposure to this economy or to the EU generally. No mention was made of the current low value put on bank shares, which presumably makes such a move by a foreign entity all the more attractive.

One prospect for rationalisation would be the merger of the two main banking groups, or the takeover of both by a foreign bank. Under current conditions this would not be allowed for competition reasons, but over time the mandarins see the Irish retail market becoming more integrated into that of the euro zone generally. This is because of factors such as the currency, the single market and developing technology. In that context, the attitude towards a merger of the two main banks could change.