Peadar Tóibín
Question:347. Deputy Peadar Tóibín asked the Minister for Finance his views on the over-concentration of the Irish banking market; and the measures being taken to counteract this over-concentration. [42096/20]
View answerWednesday, 31 March 2021
Questions (347)
Written answers
As the Deputy may be aware, the responsibility for competition policy rests with the Department of Enterprise, Trade and Employment and the Competition and Consumer Protection Commission (CCPC) is an independent statutory body that is responsible for the enforcement of competition law in Ireland. I would welcome the introduction of new lenders to the Irish market.
When considering competition in any market, two key aspects are the range of products available to all sectors and the pricing of those products. All the retail banks have extensive product ranges, so continued supply should not, for the most part, be a cause for concern. Indeed, it is worth noting that the provision of financial services is evolving rapidly. Innovations in the FinTech space and new initiatives from credit unions and An Post are resulting in the provision of new services and products all the time.
The Irish retail banking system is concentrated, with five retail banks accounting for the majority of new mortgage lending, and three retail banks accounting for the majority of new bank lending to SMEs. However, the wider context is one of improving competition in the provision of financial services, with new entrants to both bank and non-bank lending markets for households and businesses in Ireland already announced. Indeed, it is a welcome development that a new residential mortgage lender has recently entered the market. This will be of benefit to new mortgage borrowers and also to borrowers who may wish to consider switching to a new lender.
The Central Bank recognises that the relatively lower levels of competition in the Irish retail banking market may be one contributing factor to average interest rates for mortgage and SME lending being higher in Ireland than the Eurozone average. The wider context is one of improving competition in the provision of financial services, with new entrants to both bank and non-bank lending markets for households and businesses in Ireland either already announced or likely in the coming years.
Price competition is possible even in a concentrated system. The Irish mortgage market in particular is interesting in this regard. Since 2015, headline interest rates have fallen substantially for household and SME borrowers in Ireland despite a relatively small number of participants. Trends show that interest rates in Ireland have been falling in recent years, providing benefit to consumers. Interest rates on fixed rate mortgages (excluding renegotiations) have fallen from 4.05% in December 2014 to 2.79% in January 2021. The weighted average interest rate on new fixed rate mortgage agreements declined by 2 basis points to 2.65% in January 2021, the lowest level since data has been collected on a comparable basis.
There have also been reductions in interest rates on loans to SMEs from 5.19% to 3.95% over the period Q1 2015 to Q4 2020, as well as reductions in interest rates on consumer loans (for example, from 8.3% to 6.66% on APRC consumer loans from January 2015 to January 2021).
The Department of Finance published a paper in 2019 by Indecon Consulting on an Evaluation of the Concept of Community Banking in Ireland. This was a follow on to a previous paper on Local Public Banking published by the Department of Finance in 2018. The Indecon report concluded that there is no business case for the State to establish a public banking system in Ireland, supporting the outcome of the previous report on Local Public Banking.
Credit unions are increasing the offering of financial products for their members. The Credit Union Act, 1997 (the 1997 Act) and the Credit Union Act 1997 (Regulatory Requirements) Regulations 2016 set out the services that credit unions may provide to their members. These include loans and savings under the 1997 Act and a further suite of services under the 2016 Regulations such as third party payments; ATM services; bureau de change and certain insurance services on an agency basis. I understand that a number of credit unions provide some of the services provided for under the 2016 Regulations. Where a credit union wishes to provide other services to its members, an application may be made to the Central Bank for approval to provide such services in accordance with the provisions set out in sections 48-51 of the 1997 Act.
One such additional service includes the Member Personal Current Account Service (MPCAS). In 2016, the Central Bank defined and described a suite of additional services known as MPCAS, under which approved credit unions may offer personal current accounts with debit cards, overdrafts and a wide range of payment services within an appropriate risk framework.
An Post offers financial services including a payment account, personal loans, credit cards, a range of insurances, money transmission and foreign exchange services. An Post offers counter services for a number of retail banks, allowing customers to lodge and withdraw cash at An Post branches. There is there is a significant network of post offices in areas where there is no bank branch within five kilometres. An Post offers counter services for AIB, allowing customers to lodge and withdraw cash at An Post branches.
Bank of Ireland has also recently announced the closure of 88 branches in the Republic of Ireland, alongside this, it also announced a new partnership with An Post to provide a range of banking services means that there will be a post office within, on average, less than 500 metres of the branches that are being closed. The Bank confirmed that the new partnership with An Post will be available to all Bank of Ireland customers before any branch closes.