The Government is seeking the views of the public on continuing pay restrictions across Irish banks that were bailed out during the financial crisis, as part of a review of the future of the sector.
"Different views do exist in relation to that topic, but I think it's important that the matter is considered in the round," Minister for Finance Paschal Donohoe told reporters ahead of a retail banking review dialogue in Tullamore, Co Offaly, on Monday as his department launched a public consultation paper on issues within the sector.
“I recognise this is an issue of public interest, but I also know it’s an issue in which there are increasing views being articulated about the matter within the banking sector. And we will consider that in the work that we have under way.”
After initially pushing back against the idea of taking part in a forum on the future of Irish banking in the wake of announcements by Ulster Bank and KBC Bank Ireland that they were exiting the market, Mr Donohoe moved last November to launch a 12-month review of the future of banking.
The sector is grappling with ultra-low interest rates, high capital demands and an influx of fintechs and non-banks vying for parts of their business.
Ulster Bank and KBC Bank Ireland blamed the elevated levels of capital that Irish banks must hold in reserve against loans, a legacy of the financial crisis that has served to depress shareholder returns, as big factors in their decisions last year to retreat from the market.
This will shrink the number of retail banks in the Republic to three, compared to 12 institutions that were operating in the market before the 2008 financial crash.
Banking & Payments Federation Ireland's (BPFI) chief executive, Brian Hayes, said earlier this month that pay restrictions across bailed-out Irish banks posed a new systemic risk for the sector, as lenders struggle to retain top managers and compete with overseas-owned financial institutions and technology groups for key staff.
Bank of Ireland chief executive Francesca McDonagh, who has been consistently critical about remuneration restrictions, last month became the latest top figure in the industry to announce she was quitting, after fewer than five years, to take up a senior position with Credit Suisse.
It came after her former chief financial officer (CFO) Myles O’Grady left the business in March, after fewer than three years in the role.
The consultation paper also asks questions whether banks are currently meeting the needs of customers and SMEs as well as matters such as shrinking competition within the market, regulation, and the ongoing digitisation of banking.
“As a society, and as an economy, we need a functioning banking system that helps households and businesses achieve their financial, economic and social needs. I think the importance of the retail banking sector is reflected in the wide range of stakeholders present today,” Mr Donohoe told the event in Tullamore.
“The focus of the review is on the retail banking services used by Irish consumers and SMEs every day. They’re the bread and butter services that we cannot do without. By this, I mean current and savings accounts, consumer and SME credit, mortgages and access to services such as cash and payments.”
The Minister added: “Similar to other sectors, digital technology or fintech is changing the way banking services are provided to customers, which in turn is also enabling changes to the business models of traditional providers.”
The review will pay particular attention to ensuring that changes occurring in the sector “do not result in vulnerable consumers being excluded,” he said.
“Indeed, ‘access’ is a core issue, and a key focus of the review will be on ensuring that consumers and SMEs have appropriate access to the retail banking services that they need.”
Holders of more than one million deposit and current accounts are currently being forced to find alternative homes for their banking activities and savings as a result of the exits of Ulster Bank and KBC Ireland.
Mary O’Dea, chief executive of the Institute of Banking, highlighted to the conference that among the issues dragging on profitability of Irish banks is the fact that they currently generate 80 per cent of their operating income from net interest payments from customers, at a time of ultra-low market rates, while the EU average is 54 per cent. Irish banks also have to hold higher levels of expensive capital against mortgages than the average EU lender.
Ms O'Dea also noted how sector regulation has changed dramatically since the financial crash, including the introduction of a fitness and probity regime, higher regulatory capital demands, European Central Bank oversight of supervision within the euro zone, and incoming rules in the Republic that will make it easier to hold individual senior bankers accountable for failings under their watch.
She also noted the importance of the banking sector in financing the global transition to low-carbon economy. “Without banks we cannot save the planet. They will effectively drive capital to green purposes,” she said.
The International Monetary Fund estimates €20 billion will need to be spent a year in the Republic alone on climate-related infrastructure and mitigation measures to achieve the Government's medium-term emissions targets for 2030.