Just a few hours after KBC Bank’s announcement on Friday, talk began of the competitive lacuna that will be left in its wake if it is to proceed with its plans to depart the Irish market.
There is no doubt that the departure of not just one, but now most likely two, retail banks is likely to sound if not quite a death knell, then certainly a sharp knock, for competition in the sector. Already, Irish homeowners are paying the most for their mortgages and getting the lowest return on their savings. With even fewer banks set to compete amongst themselves in the future, it would be naive to expect any improvement on this front.
We already have a semi-public banking sector. And that hasn't helped bring mortgage rates down
After all, even if the two banks are still operating here, competition has already shrunk, as few people will now consider either Ulster Bank or KBC Bank as a home for their mortgage, savings or everyday banking needs.
The third force
Unsurprisingly then, the calls have already started for a "third banking force", a concept first discussed in the 1993 Programme for a Partnership Government. At the time, the plan was to develop a "vigorous" third banking force by merging ICC and ACC banks, and joining this with the trustee savings banks to form a "third force". This plan petered out however, when both of the State-owned banks were snapped up by Bank of Scotland and Rabobank, respectively. But the idea remains.
In the aftermath of the KBC announcement, Labour finance spokesman Ged Nash called for a forum on banking to consider how this can be delivered, while Sinn Féin MEP Chris MacManus referenced the example of Germany's Sparkasse and New Zealand's Kiwibank as two examples of a public banking model Ireland could hope to emulate, as Independent TD Denis Naughten proposed a role for two State-owned banking entities, the Strategic Banking Corporation of Ireland and Microfinance Ireland.
But of course what’s missing from these discussions is the fact that we already have a semi-public banking sector. And that hasn’t helped bring mortgage rates down.
Indeed with the retail market dwindling to just three major players – AIB, Bank of Ireland and Permanent TSB – it means that the Government already holds about a 50 per cent stake in the overall banking market through its significant stakes in the three remaining retail banks.
Obvious choice
But there is of course another option to broadening competition without further state involvement. Credit unions. And the sector, which encompasses more than 350 credit unions, serving more than 3.5 million members, is looking for business.
Kevin Johnson, chief executive of the Credit Union Development Association, which represents 50 credit unions across the country, said the departure of KBC Bank would be a "positive milestone" for the sector, noting that with a "full suite" of products, banking customers were already making the switch to the sector. So is this the answer to ramping up competition?
Well unfortunately, it may not be as easy as that. For one, credit unions can be expensive.
Take mortgages. Each credit union independently sets their own rates based on their asset size, staff expertise, cost structures and their risk appetite. This results in a broad range of interest rates being offered, which can be significantly greater than those offered by the banks.
Indeed some of the rates can be so high they might need to come with a consumer warning.
Consider Capital Credit Union, in south Dublin. It will only allow you to borrow up to €300,000 and says it offers a “great value” interest rate – of “only 4.9 per cent APR”. Now this is more than double what someone buying a home with Ulster Bank could have paid (2.25 per cent) and is anything but “great value”.
Indeed based on an APR of 4.9 per cent, one would end up paying €179,747.72 in interest payments over the course of 25 years on a €250,000 loan with the credit union; versus just €77,098.02 with Ulster Bank (based on interest rates staying the same).
Member First Credit Union has a better rate, of 3.5 per cent fixed for three years, but again, this is about 1 per cent more expensive than the better rates on the market.
While greater centralisation may come in the future to help credit unions cut rates, these are the rates on offer for now.
Credit unions are also closing branches. Progressive Credit Union, in north county Dublin, is selling off two of its branches, as it looks to cut costs to cope with falling income due to lower demand for loans.
Consumers may need to take a deconstructed approach to their own finances. The best value products are available from numerous different sources
You'll also find it difficult to lodge all those savings – some people at least – have built up over the pandemic. This is because over the past few years most credit unions have implemented ceilings, of varying degrees, on savings. These can range from just €10,000 at Malahide Credit Union in north Dublin, for example, to a more flexible cap of €50,000 at the Public Service Credit Union.
But there is another option perhaps: An Post. The postal service already offers a current account as well as numerous State savings options, while a move into mortgages has been mooted. And may yet come to fruition.
A spokesman for the postal service told us it is “closely monitoring the changing Irish financial services market” and will be “very ambitious” in its plans to extend its services to more customers.
But, as with credit unions, the services it already offers are on the expensive side. The account is one of the dearest on offer, at €8 a month (€96 a year) for the typical customer, according to comparison website Bonkers.ie. So much for competitive pressures then.
The niche
However, if a third banking force appears unlikely, with no one player likely to offer a broadly competitive offering, then consumers may need to take a deconstructed approach to their own finances.
The best value products are available from numerous different sources.
For example, you could move your mortgage to Avant Money, which is owned by Spanish bank Bankinter and has the lowest rate on the market. You could use a free card from Revolut or N26 for your everyday payments or to access Apple or Google Pay. You could move your savings to An Post, which has the best rates through State savings, and your current account to a credit union, which, at €4 a month, is a competitive proposition, and offers you branch access as well as access to the deposit guarantee scheme.
If a full service bank is unlikely to enter the Irish market any time soon, then all is not lost. The niche is where the competition lies.
