Stability returning after four years of turmoil but challenges remain
BANKING:Job losses, branch closures and funding issues are among the problems facing the financial sector in 2013
Irish-owned banks emerged from 2012 on a sounder footing after four years of turmoil. But a number of significant challenges face them this year as they seek to continue the process of weaning themselves off State support and returning to normalised lending.
“This year will be a key inflection point for the banking sector,” said Pat Farrell, chief executive of the Irish Banking Federation, the industry lobby group.
The changes in the sector will be many. The pace of mortgage lending is likely to increase, but deposit rates will be lowered as banks seek to reduce their cost of funding. Further forays into international markets for funding can also be expected.
Consumers can look forward to having to pay higher costs for their banking services, with Bank of Ireland’s pre-Christmas hike of credit card interest rates just a taster of what’s likely to come across the sector.
The Irish banks will continue to restructure their retail operations, with more jobs losses and branch closures likely, although Belgian bank KBC is set to buck that trend by establishing a high street presence here.
This is also likely to be the year when Bank of Ireland sells its successful New Ireland life and pensions subsidiary. The bank is a reluctant seller but the sale was a condition of its restructuring agreed with the EU a couple of years back.
The British banks – Ulster and Bank of Scotland (Ireland) – will likely offload more bad loans here, while Irish Bank Resolution Corporation will continue its wind- down of the former Anglo Irish Bank and Irish Nationwide operations.
The sector will also be forced for the first time to face up to the problems presented by bloated and underperforming mortgage books with the introduction of the Personal Insolvency Bill, which was approved by the Oireachtas in late December.
And if all that wasn’t challenging enough, the Central Bank will subject the various banks to another round of capital adequacy and liquidity assessment reviews. However, this shouldn’t prove a problem given the healthy buffers put in place last time around.
The much-maligned Government bank guarantee, otherwise known as the Eligible Liabilities Guarantee, is also likely to go. The European Commission extended it late last year until the end of June 2013, but the expectation within the sector is that it will be wound up in the first quarter of this year.
This should please Bank of Ireland in particular. In December, its chief executive, Richie Boucher, voiced his criticism of the decision to extend the scheme, which cost BOI €449 million in 2011 and is hampering its attempts to return to profitability.
“Bank of Ireland is ready to come off the guarantee and we were prepared for coming off on December 31st,” Boucher told the Financial Times.
“The delay in timing is frustrating for the bank and is something we are keeping a very close eye on and we are having dialogue with the authorities on.”