Ireland's banks are the most profitable in EU

The Republic's banking sector is the most profitable in Europe and must not exclude some regions and social groups in the wave of branch closures likely over the coming years, according to a review group set up by the Minister for Finance.

The group reported yesterday that Irish banks had a higher return on assets than their counterparts in all other EU countries during the 1990s, though this was due in part to the economic boom.

It recommended that banks use some of the increased income they are earning through ongoing reductions in corporation tax to fund significant reductions in charges for electronic and ATM transactions.

It also recommended that the regulatory authority for the financial services sector, currently the Central Bank, monitor and report on competitiveness in the sector as it affects the consumer.

The group - comprising senior civil servants from the Department of Finance and the Central Bank and charged with examining the effects of globalisation and technology on the banking industry - said the authority should also monitor the impact of future changes in banking from the consumer's perspective.

Changes likely in the future include more online banking and branch closures. The banking industry should develop a strategy for maintaining access to banking services for all sectors of society during this change, the group recommended.

According to a report compiled by the group, the main reason for high profits in Irish banks is the higher interest margins - the difference between interest paid and interest charged - in financial institutions here relative to their European counterparts.

However, increased competition is causing a decline in net interest margins.