Banks face new front in attack on profits

Everyone wants to get a slice of the heretofore highly profitable banking business.

Irish lenders have barely caught their breath after the sheer scale of Bank of Scotland's audacious raid on the Irish mortgage market caught them unawares. Having adjusted the profit margins and begun plans to allow them recoup some of the losses through cost cutting, they now face an assault on the savings side of the business.

Northern Rock's promise of 4 per cent returns on savings of more than £1,000 withdrawable on demand puts its rivals in the shade. On comparable sums on demand deposit, the best most Irish banks and building societies can do is 0.1 per cent - though Ulster Bank has now responded with an offer of its own.

Northern Rock has promised to remain at least one percentage point ahead of European Central Bank rates for the euro zone between now and January 2001, and match them for a year thereafter.

While Irish institutions will be forced to lower margins on savings, it is difficult to see how the current rate can be profitable for Northern Rock, even allowing for a lower cost structure. After all, it is effectively paying Irish savers more for their money than it would have to pay rival banks for borrowing the same money.