Danske Bank's decision to close its Irish banking operation for personal customers, while retaining a service for corporate clients, could not have come at a less opportune time. It follows the announcement last week by Rabobank, the Dutch parent of ACC bank, to shut its Irish subsidiary. Just as Ireland is assuring the world that the country is "open for business" again, the latest bank closures represent a setback for the economy, and a blow to business confidence. While for the employees of ACC and Danske, where over 300 job losses are likely, this is a very bitter blow. The closures come as the Central Bank completes its analysis of the balance sheets of banks, which it will shortly send to the European Central Bank and the European Commission. And the bad news on banking has been delivered as the Government prepares its exit strategy from the bailout programme in mid-December.
The latest closures mark a further contraction in the Irish banking sector, which has seen many overseas banks leave in recent years. Some were first attracted here by the opportunities that a single market provided, and that a rapidly expanding, high growth economy offered - before the onset of recession changed everything. For business and consumers, the economic benefits came in the form of greater competition between banks. Competition ensured customers were offered a wider range of banking services, at a lower cost. As the banking market has contracted, the dominance of two pillar banks, Bank of Ireland and Allied Irish Banks, is again apparent. All of which places the Central Bank in a difficult position. It must balance its role as the regulator of banks that are struggling to become profitable again, with its responsibility to protect the interests of bank customers, by ensuring these pillar banks do not abuse their dominant position in charging for their services.
For Danske Bank, whose Irish unit reported a pre-tax loss of €31.4 million for the first nine months of 2013, the decision to curtail its Irish operation is scarcely surprising. The bank had already greatly reduced both its financial services, and the number of branch outlets. Danske's retrenchment, allied to ACC's decision to hand back its banking licence, adds to the uncertainty that prevails in Irish banking. The future form of Ulster Bank, a subsidiary of Royal Bank of Scotland - 80 per cent owned by the British government, which to date has put €15 billion into the loss making bank - has yet to be decided. An announcement is likely today, when RBS publishes its third quarter results. Clearly the best the Government can hope for is that George Osborne, in restructuring RBS, will decide to retain its banking operation in this State. For the Government that would provide some consolation for ACC's closure and Danske Bank's partial closure.
