The government is seeking the public’s opinion on the continuation of pay restrictions at Irish banks that were bailed out during the financial crisis, as part of a review of the future of the sector.
“Different views exist on this topic, but I think it’s important that the issue be considered as part of the round,” Finance Minister Paschal Donohoe told reporters ahead of a dialogue on the bank’s review. retail in Tullamore, Co Offaly, on Monday as its Department launched a public consultation paper on issues in the sector.
“I recognize that this is a matter of public interest, but I also know that it is an issue on which more and more opinions are expressed on this subject within the banking sector. And we will take that into account in the work that we have in progress. »
After initially rejecting the idea of participating in a forum on the future of Irish banking following announcements by Ulster Bank and KBC Bank Ireland that they were leaving the market, Mr Donohoe decided last November to launch a 12-month review of the future of banking.
The sector is grappling with rock-bottom interest rates, high capital demands and an influx of fintechs and non-banks vying for a slice of their business.
Ulster Bank and KBC Bank Ireland have blamed the high levels of capital Irish banks must hold in reserve against lending, a legacy of the financial crisis which served to depress shareholder returns, as important factors in their lending decisions. year to withdraw from the market.
This will reduce the number of retail banks in the Republic to three, from 12 institutions that operated in the market before the financial crash of 2008.
Banking & Payments Federation Ireland (BPFI) chief executive Brian Hayes said earlier this month that pay cuts at bailed-out Irish banks posed a new systemic risk to the sector as lenders scrambled retain the best leaders and compete with foreign banks. institutions and technology groups for key personnel.
Bank of Ireland chief executive Francesca McDonagh, who has always been critical of pay cuts, last month became the latest industry figure to announce she was leaving, after less than five years, to take up a senior role at the Swiss credit.
It came after its former chief financial officer (CFO) Myles O’Grady left the company in March after less than three years.
The consultation document also raises the question of whether banks are currently responding to the needs of customers and SMEs, as well as questions such as the reduction of competition in the market, regulation and the ongoing digitization of the banking sector.
“As a society and as an economy, we need a functioning banking system that helps households and businesses meet their financial, economic and social needs. I think the importance of the retail banking industry is reflected in the wide range of stakeholders here today,” Mr. Donohoe said at the event in Tullamore on Monday.
“The review focuses on retail banking services used daily by Irish consumers and SMEs. These are the bread and butter services we cannot do without. By this I mean current and savings accounts, consumer and SME loans, mortgages and access to services such as cash and payments.
The Minister added: “As in other sectors, digital technology or fintech is changing the way banking services are provided to customers, which in turn also allows for changes in the business models of traditional providers.”
The review will pay particular attention to ensuring that the changes taking place in the sector “do not lead to the exclusion of vulnerable consumers”, he said.
“Indeed, ‘access’ is a central issue, and one of the main objectives of the review will be to ensure that consumers and SMEs have appropriate access to the retail banking services they need. “
Holders of over a million deposit and current accounts are currently being forced to find alternative housing for their banking and savings following the exits of Ulster Bank and KBC Ireland.
Mary O’Dea, chief executive of the Institute of Banking, pointed out at the conference that among the problems weighing on the profitability of Irish banks was the fact that they currently generate 80% of their operating income from net interest payments from customers, at a time of ultra-low market rates, while the EU average is 54 percent. Irish banks also have to hold expensive levels of capital against higher mortgages than the average EU lender.
Ms O’Dea also noted how regulation of the sector has changed dramatically since the financial crash, including the introduction of a fitness and probity regime, higher regulatory capital requirements, oversight of supervision of the European Central Bank in the Eurozone and incoming rules in the Republic which will facilitate the accountability of individual senior bankers for breaches under their supervision.
She also highlighted the importance of the banking sector in financing the global transition to a low carbon economy. “Without banks, we cannot save the planet. They will effectively direct capital towards ecological goals,” she said.
The International Monetary Fund estimates that 20 billion euros will need to be spent a year in the Republic alone on climate-related infrastructure and mitigation measures to meet the government’s medium-term emissions targets for 2030.