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The review of the banking sector now under way is examining a sector which has recovered from the financial crash but still faces many challenges. Correctly, the focus is on the users of banking services – consumers and businesses. A survey undertaken as part of the review shows that a majority believe that the culture of the banks has either not changed or disimproved since the financial crash.
Of course reputational questions are only one of the issues to be dealt with in the review. It was initiated last July by Minister for Finance Paschal Donohoe in the wake of three significant announcements – the planned departure of Ulster Bank and KBC and Bank of Ireland's decision to downsize its branch network. Following a public discussion with key parties yesterday, the Department of Finance has invited submissions on the future of the sector.
The banks will be ready to make their case, and their customers should do so as well. One of the traditional problems has been the somewhat closed world of policymaking between the Government, the Central Bank and the banks. It is important that a wider range of views inform this review process.
There is much to consider. Competition is weak in some areas, notwithstanding the intense fight for business in others, partly spurred by smaller entrants. Credit is available, but take-up has been low and borrowing rates here for consumers and small businesses remain high by EU comparison.
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Digital channels have allowed banks to improve their customer service, but much remains to be done
At a time when interest rates are starting to go up, it is all the more important to address these issues. High borrowing costs here relate in part to lack of competition in some areas and in part to capital rules imposed on banks. Both have a policy dimension – for example in relation to the procedures banks have to go through to enter the Irish market and the rules imposed by regulators.
Inclusion must also be a vital element of the review. Branch networks look set to continue to contract over time, but services can be made available through other routes, digital and otherwise. The review survey shows that older customers, in particular, need support.
Digital channels have allowed banks to improve their customer service, but much remains to be done. Switching codes have been a step forward, but it is clear that those moving accounts from Ulster Bank and KBC are in some cases facing undue barriers. The Central Bank is to meet the main banks in relation to this and it is an issue which must be sorted out. The last thing the sector needs is another controversy.
The final point is that the review will be of no use unless it is followed by action. Initiating the process was the right thing for Donohoe to do. But it must be a framework for action and not just an excuse to put things on the long finger.