Donohoe’s banking review to ‘review’ expected bankers’ bonus claims

Finance Minister Paschal Donohoe said on Tuesday he expected his officials to present and “review” bank submissions on the impact of wage cuts on bailed out lenders in a review so much. expected from the future of Irish retail banking.

“I expect submissions to be made on this and evaluated and considered,” Donohoe told reporters on Tuesday as he released the terms of reference for a major review. wingspan, which will take 12 months.

A report by the Banking and Payments Federation Ireland (BPFI) released in September said the current ban on variable pay among domestic banks puts them in a “considerable and growing” position compared to other lenders, IT companies and businesses.

However, the government refused to change the regime for fear of a political backlash. Remuneration is not mentioned in the terms of reference.

After months of pushing back the idea of ​​participating in a forum on the future of Irish banking following Ulster Bank and KBC Bank Ireland’s announcement of their exit from the market, Mr Donohoe conceded in July by agreeing to to oversee a “broad review” of the sector.

The industry is grappling with ultra-low interest rates, high capital requirements, and an influx of fintechs and non-banks vying for some of their business.

Both exiting lenders blamed the high levels of capital Irish banks must hold in reserve against loans, a legacy of the financial crisis that served to depress shareholder returns, as important factors in their decisions to exit the Marlet.

For consumers, the shrinking market to just three retail banks will erode competition, especially the small business lending space. However, stock analysts say the planned split of the Ulster Bank and KBC Ireland loan portfolios between AIB, Bank of Ireland and Permanent TSB (PTSB) will increase the size of the remaining banks, helping them restore profitability to low levels. levels that investors see. as the sign of healthy banks.

Interest rate

The Department of Finance’s review will focus on the development of the mortgage market and how competition and capital requirements are fueling interest rate setting.

The average interest rate on a new mortgage in the Republic, 2.72% in September, is the second highest in the euro area and more than double the average rate for the money block.

The terms of reference also include plans to map the current retail banking landscape and likely market trends over the next decade; learn from the banking sectors of open economies of similar size; and the implications of Covid-19 and Brexit.

The review will also assess “operational challenges” within the business models of Irish lenders and “structural changes arising from fintech and digital finance, which are disrupting the traditional model,” the department said in a statement Tuesday.

The department’s review also comes against the backdrop of the remaining banks forcing staff cuts and, in some cases, branch closings as they seek to contain costs in an era of low profits and leverage. a continued movement of online banking, which has significantly accelerated by the Covid-19 pandemic.

Commitment

The ministry is currently setting up a dedicated team to conduct the review. It will work with other government departments and agencies, including the Central Bank and the Competition and Consumer Protection Commission. He also intends to engage with BPFI and the Financial Services Union (FSU) and conduct a public consultation.

“The FSU has campaigned over the past 12 months for the creation of a banking forum where all relevant stakeholders would be involved and where a structured debate on the future of the bank could take place,” the secretary general said. from the union, John O’Connell. . “I am happy today that the Minister of Finance accepted our suggestion.”

BPFI Managing Director Brian Hayes said: “What is needed at this point is an honest discussion of the challenges and opportunities facing banks in Ireland. We see this exam as an opportunity to focus on the future and learn from the past. Banking in Ireland today is totally different from banking in Ireland ten years ago. “

Labor Party finance spokesman Ged Nash said it would have been better if a process had been chaired by an independent outside expert.

“The Ministry of Finance has an important skin in the banking game. The state owns the majority stake in AIB and PTSB, and a declining stake in Bank of Ireland, ”he said.


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