Action needed to bring banks into line


Irish bank profits and associated charges are the highest in Europe. They are being built on cuts in customer services and the closure of branches. And the icing on the cake is a guaranteed annual reduction of 4.5 per cent in corporation tax until 2003, which comes courtesy of the Coalition Government.

For months now, Charlie McCreevy has been gently wagging his finger at the banks and reminding them of their social responsibilities in return for such Government largesse. But they don't seem to pay a blind bit of notice. In their ivory counting houses, the "bottom line" is the only measurement that matters. And to hell with the ordinary, paper-using customer.

Joe Costello raised a stink about branch closures north of the Liffey and got 12,000 signatures. He is also introducing a Bill that would give the Central Bank the right to regulate closures. Consumer anger is palpable.

The Bank of Ireland is in the process of reducing the number of its branches by 20 per cent. Allied Irish Banks cut its branch network by 13 per cent in three years, with more closures in the pipeline. The withdrawal of branch services is hitting both urban and rural communities and private and business customers. In tandem with that, the banks have embarked on a cost-cutting exercise involving the withdrawal of traditional paper transaction facilities, such as bill paying and cheque cashing.

Online banking, greater use of ATMs, direct debits and standing orders are offered as alternatives. But these facilities might as well inhabit a foreign country where many older customers are concerned. The inflexible changes dishonour the traditional customer-banker contract in favour of that bottom line.

The Minister for Finance has thrown a few shapes to reassure consumers. Last month, he told the Institute of Bankers that because of the criminal behaviour by its members in the DIRT scandal, better regulation was required. He urged them to re-examine branch closures and the complaints of customers. And he trotted out the first rule of good business: "You have to bring your customers with you."

But Mr McCreevy's heart wasn't in it. He knew he would get a dusty answer. After all, customers are only important when there is real competition. Despite that, the Minister still rattled the cage. He would like to see, he intoned, a significant proportion of the reducing corporation tax burden being passed on to customers. He disliked the notion of heavy regulation. But it might be necessary, he hinted, in pursuit of lower transaction costs, better saving rates and tighter lending margins.

In Government terms, it may have been tough talking: encouraging the banks to reduce consumer charges in return for tax cuts. And if they didn't? Would he slap a surcharge on excessive profits? He didn't go there. But, if they co-operated, Mr McCreevy would make it up to them by looking at the "vexed question of stamp duty on transactions". It was a case of a carrot and a bigger carrot.

Despite such pussy-footing, the Minister for Finance will shortly be asked to make the banks address the needs of ordinary customers. You see, the banks are now attempting to offload the unprofitable, paper-based elements of their business onto An Post. They want to create a direct-debit bill-paying system that will take the human clutter out of their branches. And they are prepared to pay something for abdicating their social responsibilities. The question of how much they will pay and the final shape of new banking arrangements is where Mr McCreevy comes in.

Negotiations between An Post and representatives of the Bank of Ireland, AIB, NIB and Ulster Bank have been going on for two years under the aegis of the Taoiseach's Department and they are expected to be completed within a matter of weeks.

Public concern should revolve around the nature of the deal. For, if the big banks ensure the arrangement is confined to a bill-paying system, the taxpayer will again emerge holding the mucky end of the stick. Consumers must be provided with choice. That is the core element of competition. So, if customers are forced to do their bill-paying business through post offices, they should also be facilitated there with other services.

There is talk in Government about the establishment of a universal bank account system that would bring post offices into the financial loop and probably include credit unions. Every citizen would have a bank account and an ATM-type card. And all State and social welfare payments would eventually be made through the new system. Officials in Bertie Ahern's Department are said to favour it but, not surprisingly, the banks are reluctant to see a large number of their customers switch to a new post office bank.

A bit of Government muscle at this stage would not go astray. If the banks are to gain through the bill-paying system, they should accept some pain on the banking front. That should involve some of the cost of upgrading and modernising the post office system.

As things stand, An Post has 1,913 offices throughout the State. Some 1,000 of these are fully automated and conduct about 90 per cent of all business. But when the bill-paying system is introduced - probably in the new year - an extra 20 million transactions may be routed through post offices in ESB and Eircom bills alone. If cheque changing facilities and ATM services are to be introduced, the entire system must be revitalised.

Mary O'Rourke has already ruled out further post office closures and favours an expansion of services. She is anxious that An Post should also provide Internet services. This would be very expensive to implement. With an eye to its commercial mandate, An Post management has been resisting the computerisation of small sub-offices. But the Minister has now offered £5 million for upgrading work if An Post invests a similar amount.

It will take far more money than that to modernise and upgrade the entire system. But the lack of basic banking facilities in large parts of rural Ireland demands that something be done. Given the role of the banks themselves in creating the problem, it is only right that they should accept a proportion of the cost. And, because of the windfall profits they will enjoy for the next three years through falling corporation tax charges, they can well afford it.