Talking among themselves, bankers stressed the need to rebuild confidence, writes STEVEN CARROLL

THERE MAY be some difficult days ahead but the chairman of AIB, Dan O’Connor, yesterday said he was confident the lender could get itself back on track.

O’Connor said that, before the downturn, at which Ireland had been at the extreme end, property lending grew too fast, risk analysis was not strong and a divided approach saw corporate banking skills going unused.

Speaking at the Irish Banking Federation (IBF) conference entitled Rebuilding Confidence, O’Connor said banks needed to “get back to basics” if they were to recover from a turbulent period.

“This can be fixed. The country is in trouble, the banks are in trouble but there are ways to get out of this,” he said.

“Whether it’s through guarantees of capital or Nama there will still be difficult days ahead . . . but we are committed to getting ourselves back and working with our customers.”

In order to do this, he said AIB would be seeking greater involvement in the areas of invoice discounting, affordable housing and capped rate mortgages.

He said a focus on the domestic market, which he expects some weaker players to leave, and a move from asset growth to a return on assets formed part of the reality of retail banking in the present day.

Alex Hungate of HBSC Holdings told the conference that bank consolidation was inevitable around the world as pressure on retail banking margins forced lenders to cut their costs.

Hungate, HBSC’s head of personal financial services, said pressure on margins from competition for retail deposits would continue as retailers and new entrants targeted customers.

He said other factors such as increased regulation, low interest rates, declining trust in the industry and capital, liquidity and funding issues were all putting pressure on retail banking.

“These will result in a huge amount of pressure on costs, and banks will have to reduce their costs dramatically.”

Hungate said a retrenchment by banks to their domestic markets further added to the prospect of consolidation.

“It doesn’t really matter what the EU does in terms of trying to break up large groups, the market forces over time will drive the consolidation in every market.”

Chand Kohli, leader of financial services with Price Waterhouse Coopers, said banks need to focus on deposit gathering and that Ireland was a good place to do this.

Kohli said Ireland should lose no time in marketing itself as an appropriate place to conduct the business of international financial services as the industry was beginning to settle down following a period of flux.

“It is time to look to Asia in terms of attracting financial services to Ireland,” he said.

Kohli said if Ireland did want to be involved the business of attracting new financial service providers it needed to be at a high bar in the regulatory game.

“Regulatory reform in Ireland and Europe must support that focus in and improve transparency for investors.” However, he said it was important regulators got the balance right and did not attempt to eliminate risk entirely.

“This would drive innovation to unregulated entities and likely be self-defeating. We need to accept that regulation will not prevent all failures.”

Willie Slattery, managing director, State Street International (Ireland) Ltd, said the establishment of a new regulatory framework should follow an analysis of what went wrong initially.

“Otherwise aspects of the framework may be designed to address the wrong issues and may result in perverse outcomes from a public policy perspective and/or negative unintended consequences.

Slattery said he believed there were “major deficiencies” in the Nama project because the agency offered no transparency and the “normal process of market discipline had been removed from those most culpable”.