OPERATING profits at the banks and building societies should grow by between 6 and 8 per cent a year over the next two years, according to NCB analyst Mr Shane Nolan.
A squeeze on net interest margins as competition in the mortgage and deposit market intensifies will be offset by tighter cost control, higher fee income and growth in the volume of mortgages and deposits, he forecasts.
In a detailed review, Mr Nolan says he does not expect full scale price wars in the Irish mortgage and deposit markets but he does expect competition for new business to intensify especially if, as he forecasts, the new housing market slows after 1996 cutting profits on new mortgage business.
On the organisational options for the three mutual building societies, Mr Nolan says they could either retain mutual status, covert to public company status and float on the stock market or merge with the Bank of Ireland building society subsidiary, ICS.
Current legislation under which an investor cannot build up a stake of more than 15 per cent until five years after conversion, may be damaging to some societies, he suggests. This is because it rules out the formation of friendly alliances.
At the end of 1995, the building societies and Irish Permanent accounted for 59 per cent of total mortgage lending, down from 62 per cent five years earlier, and the banks controlled 34 per cent.
In the deposit market, the building societies and Irish Permanent control about 20 per cent of the total market but their share of net new deposits has fallen to about 10 per cent over the past three years. They have lost out to the banks and the post office savings bank.
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