As the banks continue to languish at very low levels they are vying to impress the market with their Internet strategy to trigger some upward movement in the share price again. In a report on Internet banking this week, Merrion Capital, predicts that traditional banks, which are predominantly served by branch networks, will cede significant market share to new third-party banks if they do not have full on-line products and can compete on price. And Merrion stresses it is only banks that can outline a credible Internet strategy that will see any short-term improvement in their share price.

Speed is now of the essence. The key initial challenge for Irish banks is to minimise potential loss of income by ensuring rapid migration of customers to an in-house online bank. So far the strategies outlined by the main Irish banks have been defensive. Merrion expects AIB and Bank of Ireland to target new customers through alliances with third parties or a direct Internet strategy. The brokers, who are recommending bank shares as a buy at current levels, stated that Internet related worries would gradually be addressed. Merrion favours AIB over Bank of Ireland as AIB has been more aggressive in rolling out its Internet strategy. Bank of Ireland may also be affected by poor sentiment towards UK mortgage banks. Its strongest recommendation is Irish Life & Permanent and Anglo Irish Bank.