Customers not appeased by bank sector's survey on charges

Clients do not believe they are getting a good deal, writes Siobhán Creaton, Finance Correspondent.

Irish banks just can't seem to shake the public perception that they constantly rip off their customers in the quest for huge profits.

This week, the Irish Bankers Federation (IBF) presented the results of a specially commissioned survey to prove that customers of Irish banks with mortgages and current accounts are often getting a much better deal than consumers in other European states.

The survey was a typical response from the banking industry, which has a long tradition of commissioning independent reports to make its case.

The research was carried out by consultants Customers for Life, which examined the cost of holding a current account, a credit card, a personal loan and a mortgage in various European countries.

Banks in France and Italy did not participate in the survey and different countries were selected in each case to measure the cost comparison based on the availability of these products in the various markets.

The survey was a clever response from the banks' viewpoint, but is not the most effective way to assuage the sceptical public.

Bank customers were quick to let the media know that, despite its findings, they simply do not believe they are getting a good deal.

One AIB customer made his views known to The Irish Times. "I am from Dublin but have been working in the UK for the last 5 years. I have a current account with HSBC in the UK and one with AIB in Ireland. It never fails to amaze me just how much I get ripped off with my Irish current account compared to my UK current account.

"With my account in AIB it appears I get charged for every single transaction. On top of that there is a quarterly maintenance fee which makes me laugh! What maintenance is there apart from the transactions which they already charge you for? With my HSBC account there are no transaction fees for regular services such as direct debits. There is also no quarterly maintenance fee.

"I have an overdraft with both accounts. Although I rarely ever use my AIB overdraft I get charged an annual fee of €25 just for the privilege of having the facility! With my HSBC overdraft which I use regularly, there is no annual fee.

"It really annoys me to read about these surveys which show that Irish banking is amongst the most competitive in Europe. Current accounts are substantially cheaper in the UK and not just moderately cheaper, as the survey concludes. It's just another example of the cosy little environment that exists in Ireland where the commercial banks overcharge their customers because they know they can due to the lack of competition.

"If they took a year's bank statements from both my accounts they would come to a very different conclusion."

This is a fairly typical response and would seem to suggest this customer is more satisfied with his relationship with HSBC than with AIB.

The IBF survey of the average cost of running a current account concluded that customers of Irish banks were on average paying €70 a year, some 22.5 per cent below the European average of €90. It also backs up the AIB customer's claim that it is cheaper to operate a current account in the UK, where the average cost is €60.

The survey also showed that Irish banks were offering the most competitive mortgages among the European states surveyed. Most Irish consumers would probably broadly accept this finding but only because they have witnessed a dramatic fall in mortgage interest rates since the arrival of Bank of Scotland.

Mortgage rates could of course be cheaper, particularly if all the financial institutions passed on the full 0.25 of a percentage point cut in European Central Bank rates this month. But consumers should take some solace from the fact that mortgage rates are fairly competitive here - after all, a mortgage is the biggest financial undertaking for most people.

The survey suggests that the Irish banks compare fairly favourably on personal loans but, again, in many cases the comparison was not strictly on a like-for-like basis because some of the countries surveyed were outside the euro zone.

And there seems little doubt that there is much room for manoeuvre on credit cards, where Irish banks could offer much better rates to their customers.

The Competition Authority has begun a widescale examination of the Irish banking industry. Davy Stockbrokers has already signalled that the authority could force the banks to pay interest on current accounts but other brokers believe most reforms will be sought in the small and medium-sized business sector.

The Department of Finance, together with the Central Bank, comprehensively reviewed the banking sector in 2000, concluding that there was a high level of competition in personal banking but that the small and medium-sized business sector could be better served. It will be interesting to see whether the Competition Authority's investigations turn up something different.

The banks' problem is that for all of the surveys they commission, Irish financial institutions have established a track record for being far more profitable than many of their European competitors. Even when factors such as the lower rate of corporation tax paid here is taken into account, they have still delivered very handsome returns for shareholders based largely on profits generated in the Republic.

Consumers can only hope that the Competition Authority will force keener pricing. But, given the degree of scepticism around, it is hard to imagine that Irish consumers will ever believe they are getting a fair deal from their bank.