Royal Bank of Scotland chief tells Siobhán Creaton it plans to build on existing opportunities

It's almost two years since Sir Fred Goodwin came to Dublin to purchase First Active.

The 46-year-old chief executive of Royal Bank of Scotland, (RBS) who has led the transformation of the Edinburgh-based banking group into the world's fourth biggest financial institution, was signalling his intention to square up to AIB and Bank of Ireland in Ireland. So far, he says, things are going according to plan. "Ireland is a very attractive market for us. I am very happy about the progress in the business here."

RBS group got a foothold in Ireland in 2000 following a bruising takeover of one of the UK's biggest banks, National Westminster. Ulster Bank, which was in the NatWest stable, gave RBS a substantial presence in Northern Ireland, but a lesser footprint in the Republic's booming and prosperous economy.

Given its acquisitive tendencies, the group had often been mentioned as a contender to take over AIB or Bank of Ireland, particularly at times of crisis at both of Ireland's biggest banks.

Goodwin says this was never on the cards. "I don't think a bid for AIB or Bank of Ireland would ever have gotten off the drawing board here. The market shares would have been too big. We would never have been allowed to buy them," he explains pointing to the likely opposition, on grounds of competition, to such a deal.

"We were very happy owners of Ulster Bank and we felt it had and has a lot of potential. First Active struck us as something very complimentary that we could add on and would give us a bit more scale here. It had been on the radar screen for some time. It also came with some very talented people, Cormac McCarthy [its chief executive] being the most obvious example. We kind of followed its fortunes for a little while and one thing led to another," he says.

By the time Goodwin signed the €887 million cheque for the former building society, it had been transformed into a lean and profitable organisation that had a growing share of Ireland's burgeoning mortgage market. Together, First Active and Ulster Bank have 1.3 million personal and business customers and 263 branches across the Republic of Ireland and Northern Ireland.

The two banks have now been integrated and are run by a single management team lead by McCarthy. The two brands have been maintained and Goodwin says the plan is to keep them quite clear and distinct going forward.

Last week, the Competition Authority once again cited the lack of competition amongst Irish banks as the main reason why Irish consumers end up paying over the odds for their limited range of services and products. It is also viewed as the chief reason why Irish banks are so profitable.

Goodwin disagrees with this analysis. "I don't know that the Irish market is especially profitable for banks, but it is a market where there is a lot of economic activity and growth and a lot of prosperity and that creates opportunities for financial institutions.

"The Irish economy is not growing as fast as it was, but it is still one of the fastest growing around here. It has great prospects. These conditions are very supportive for a business."

He hasn't studied the Competition Authority's report, but finds it hard to accept that there's a lack of banking competition here. "It certainly feels like there is plenty of competition around. Talking to Cormac and the guys, and I am on the board of Ulster Bank, it feels competitive," he says.

"It is very unusual to find markets where there isn't competition. We find in our business that competition actually keeps the business driving forward. You don't really want to be in a market where there is no effective competition. You always think you do but actually once you got to that place, your business would be less capable. Competition keeps you constantly striving for improvement."

One of the key measures used to highlight the lack of competition was the fact that more than 70 per cent of Irish consumers had a current account with AIB and Bank of Ireland, with relatively small numbers switching their business to rivals offering a better deal.

On this issue, Goodwin argues that a lack of evidence of people shopping around amongst the banks is not necessarily a bad thing. "Sometimes that is a good thing. It can mean that people are content with what they are getting."

He likes to meet RBS staff and customers in Ireland, the UK, US and in Europe regularly, as it helps him to keep in touch with what's happening on the ground in these key markets. "I spend a lot of time travelling and that's by choice. I like to get out and visit. I am not here for instance to check up on Cormac. I am here to meet customers, to spend some time with Cormac's team in meetings, seeing our staff and giving them a chance to ask me questions. You can do a sort of a smell test that way," he says.

"Cormac and his team here operate with a fairly large degree of autonomy. Sure, he has to put in a budget each year, but within that budget the team here is left to get on with it the same way their colleagues in the US are. It means there are not many day to day business decisions that I have to make or be involved with."

He will be guided on whether RBS should gobble up any more Irish financial institutions in its quest to expand here by McCarthy, whom he describes as the group's "eyes and ears" in Ireland. "If there are deals to be done, I would be interested in seeing them but at the moment we are concentrating on maximising the opportunities that we have got."

Goodwin says all acquisitions, and RBS has made 26 during his tenure, are based on business needs.

"NatWest was a transformational deal for RBS. The day we were handed the keys of NatWest we were left with a huge task to integrate that business, but we weren't too far into that process when we realised that we would be left with a business that was much bigger, much more viable economically, but had gaps."

In Ireland, First Active filled the gap it needed to expand in the Republic. RBS has plugged gaps in its US business by acquiring financial institutions such as Mellon Bank and Charter One. "Contrary to widespread belief, we haven't just gone out and bought things for the excitement of it. We made acquisitions to get ourselves businesses that we felt had critical mass going forward," he says.

It has recently moved into China, taking a 5 per cent stake in the Bank of China. "The process wasn't very sophisticated," he explains. "You have only got to look at a map of the world and look at the demographics. There is a huge population, not just in China but in India as well, who are likely to want things that we could offer on a global scale."

Goodwin says that in an ideal world, RBS would have probably preferred to delay this deal for a few years, but as the Chinese government embarked on reforming the financial services sector there was an opportunity to be seized.

"The beauty of this is that we know we don't know a lot about China and this is a pretty good opportunity to learn a whole lot more," he says. "Is it going to be big? I'm not sure, but it feels a whole lot better to have a toe in the water and an opportunity to learn."

FACTFILE

Name: Sir Fred Goodwin.

Age: 47.

Background: Born in Paisley, Scotland. He studied law at Glasgow University and later qualified as a chartered accountant.

Career: He was chief executive and director of the Clydesdale and Yorkshire banks before taking on the chief executive's role at Royal Bank of Scotland in 1998. During his tenure RBS has expanded, acquiring businesses in the UK, US, Ireland and China and is the world's fourth biggest financial institution.

Interests: Anything to do with cars.

Why he is in the news: He is visiting staff at First Active and Ulster Bank almost two years after he brought them together.