Increased competition in Irish banking is urgently required if the interests of the consumer are to be protected, according to a report prepared for the Minister for Finance, Mr McCreevy, by senior officials from his Department and from the Central Bank. The report - which was quietly released by Mr McCreevy at the start of the bank holiday weekend - does not draw its conclusions in such explicit terms. But the thrust of its findings on the huge profitability of Irish banks and its recommendations on transparency and consumer protection, point sharply in that direction.
Irish banks enjoy the highest return on assets within the European Union and the percentage profit made on average capital is comfortably ahead of the top banks in Europe. The main reason for this exceptional profitability is the higher interest margins - the difference between interest paid and interest charged to customers - operated by Irish financial institutions. The gap amounts to an average 3.2 per cent, compared to 1.3 per cent in France. And our top commercial banks secure a margin of 4.1 per cent.
Ireland, the report notes, tends to have "one of the more profitable banking systems." This situation is linked to concentration and one recent survey gave the top five banks 90 per cent of the overall domestic retail banking market. And while banking was found to be highly competitive for large customers, there was a lack of data on its treatment of medium and small customers. The power of the banks in those areas needs to be monitored.
The kernel of the report emphasises the need for competition and consumer protection. Looking ahead, it urges that banks and financial institutions should no longer be exempted from Mergers and Monopolies legislation. The Minister for Enterprise, Trade and Employment, along with the Competition Authority, should ensure compliance with competition laws. And the supervisory authority (at present the Central Bank) should monitor and report on competitiveness from the point of view of the consumer. In addition, it suggests that promised cuts in corporation tax should be predicated on a requirement by the banks to improve ATM services and electronic banking for consumers. Given the willingness of the banks to subvert the taxation system in relation to DIRT payments in the 1980s and 1990s, in pursuit of higher profits, this report is timely. The banks' record of civic responsibility is nothing short of appalling. And their bare-faced arrogance in ignoring corporate and individual duty is in keeping with it. The Revenue Commissioners are at present in the process of extracting the taxes and penalties due by the banks in relation to that DIRT scandal. But the Government has a wider responsibility to protect the consumer and society at large.
The standard rate of corporation tax will have been reduced from 32 per cent to 12.5 per cent by the year 2003. Simply rewarding the banks by cutting corporation tax rates - and transferring a larger proportion of the taxation burden to the PAYE sector - is not the way to go. The Minister for Finance has promised to consider legislative changes. In this instance, Mr McCreevy should ensure that the Government's plans on regionalisation and the development of deprived communities should be underpinned by more extensive ATM services, by electronic/automated banking and by arrangements between the banks and other credit institutions where services are withdrawn.