FINANCIALS: There has been much speculation recently about the possible merger of the two major banking institutions in Ireland - Bank of Ireland and AIB - mostly because of the latter's problems in the US.

Indeed this speculation was greatly fuelled by the reported comments of new the Bank of Ireland chief, Mr Michael Soden, who declared that such a move would be in the best interests of customers, shareholders and the Irish economy.

But would the amalgamation of the two banking groups into a €25 billion "super bank" serve the country well? Is it a good idea to group together the two banks that already account for 80 per cent of current account and credit card transactions in the State?

Proponents of the idea might claim that such a merger should create a formidable banking force capable of achieving significant economies of scale and strong impact on the world stage. But would the outcome be worth it when you consider that these two players also control very large chunks of other banking business in the Republic, e.g. more than half of SME lending and motor finance.

I am firmly of the view that what the country, and particularly the business community, needs at this time is more competition, not less.

The "cosy cartel" that exists in general Irish banking circles - and that is the only term to describe the current state of the market clearly dominated by the AIB-BoI duopoly - must be broken immediately and emphatically if the Irish economy and the business sector are to reap their full potential and continue to achieve success in a changing economic climate.

What is wrong with the existing banking set-up in the Republic that leads me to make this assertion? Let me point to a few realities.

A number of studies suggest that Irish bank charges are among the highest in Europe. A report by the joint Department of Finance/ Central Bank Working Group in 2000 referred to statistics that indicated that Irish gross profit margins for unsecured personal loans were the second highest in the euro zone and almost double those in France.

The gross profit margin of Irish banks on overdrafts was also among the highest in Europe, coming in second behind Portugal, with French margins more than 30 per cent lower.

An EU Commission survey in September 2001 showed that Irish bank charges were the second worst in Europe for cross-border transfers across 40 different banks in 15 different member-states, surpassed only by the Greeks.

Meanwhile, business satisfaction with Irish banks leaves a lot to be desired. In a report published by ISME in June 2001, 20 per cent of respondents said they did not trust their bank, 50 per cent were concerned about interest rates charged, and 75 per cent about fees and charges.

Nearly half who queried their bank charges and interest rates, and initially received an unsatisfactory response, subsequently received a refund. Seventy-five said that there was no difference between any of the banks.

To any fair-minded observer, these facts hardly point to an efficient service. They signal a sector that is creaming off rich pickings and offering relatively poor return to the customers in a non-competitive environment. All the hallmarks of a "cosy cartel" exist.

This situation is very similar to that which prevailed in Irish-British airline circles before Ryanair burst on the scene. And it also closely resembles the state of the Irish home-loan market before the entry by Bank of Scotland in August 1999. The existing players then claimed that it was a competitive market. Yet Bank of Scotland's entry resulted in a fall of 2.3 per cent in standard variable rates and 80 per cent in gross profit margins, leading to substantial benefits for consumers.

All of this points to one conclusion: what the Irish banking sector needs at this time is more competition not less. The Irish consumer, and particularly business owners and managers of both small and large companies, need a competitive and efficient banking environment that is geared to provide value-for-money services.

Business people need to be assured that the banks are decidedly on their side, and not on the side of excessive margins and poor service arising from lack of competition.

Mark Duffy is chief executive of Bank of Scotland (Ireland)