The tax-efficient personal savings and investment accounts (SIAs) planned by Minister for Finance Simon Harris will likely only have a “modest” impact on banks’ income as their investment arms capture a share of money moving out of their deposits business, according to Goodbody Stockbrokers.
Banking and Payments Federation Ireland (BPFI) estimated last month that the planned SIAs may attract as much as €7 billion of the €170 billion Irish households currently have on deposit with the banks in the first year of the scheme. Some €20 billion-€30 billion could potentially be put to work in SIAs over time, it added.
“While initial market reactions are likely to focus on the risk of deposit outflows and the associated impact on funding costs and margins [for banks], we believe this framing is incomplete and risks overlooking the more important structural implications,” said Denis McGoldrick, an analyst with Goodbody Stockbrokers, which is owned by AIB.
SIAs are an opportunity for banks to retain customer relationships as money held on deposit moves into investment products, he said. While it would see a reduction in the banks’ net interest income, it could boost their revenues from fees and commissions.
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Bank of Ireland and AIB have acquired Davy and Goodbody, respectively, in the past five years to position themselves to benefit from an expected increase in demand for investment products – even before the Government flagged plans for SIAs. AIB also re-entered the life and pensions business two years ago by launching a joint venture with Canada’s Great-West Lifeco to compete with Bank of Ireland’s New Ireland unit.
PTSB’s planned acquirer, Austrian banking group Bawag, has signalled an interest in developing investment services in the bank.
However, McGoldrick noted that the banks will face direct competition with digital platforms, neobanks and investment providers for assets under advice and management.
“The SIA introduces a new dimension of competition centred on the ownership of customer relationships and the distribution of financial products. Banks that are able to retain customers within their ecosystems and capture SIA flows through their own platforms are likely to mitigate the impact on profitability and potentially benefit from an expanded fee base,” he said.
“Conversely, banks that fail to adapt risk losing not only deposit volumes but also the broader economic value associated with customer relationships. The key differentiator will therefore be less about balance sheet metrics and more about distribution capability, product offering and digital engagement.”
Harris said in late March that the planned personal investment account regime will feature an annual flat-rate tax that is likely to be set in the budget later this year. He said this flat-rate tax could potentially serve as the sole form of taxation on investments made through the new account.
The plan is in line with a push by the European Commission for EU member states to adopt tax-friendly models to encourage individuals to invest.
