German bank seeks State backing for pilot schemes

A key report on proposals for the model in Ireland is due, writes Fearghal O’Connor

GERMAN bank Sparkasse plans to establish a €30m pilot project with branches in Westmeath and Fingal, the Sunday Independent has learned.

Supporters of the project believe the community-based not-for-profit model could deliver cheap mortgage, business and farming loans.

Sparkasse has said it is willing to supply expertise and support for the new bank but the initial cost of the project would have to come from sources such as the State, the credit union movement or the European Investment Bank.

The plan is dependent on political backing and a key report into the establishment of community banking models is with Department of Finance officials before being brought to cabinet.

Key officials are understood to be concerned that competition from a not-forprofit bank could impact on other banks previously rescued by the State.

The report could be brought to cabinet in the next fortnight and subsequently published, it is understood. If the report is positive towards the idea, stakeholders group will be formed to progress plans for the two pilot projects, according to sources.

Sparkasse, the biggest bank in Germany, is owned by local municipalities.

GERMAN bank Sparkasse plans to establish a €30m pilot project in Westmeath and Fingal, with each area twinned for support with an individual notfor-profit regional bank in Germany, the Sunday Independent has learned.

But the plans hang on a key report into community banking models that is with Department of Finance officials and expected to be published within a fortnight, according to sources.

Supporters of the model argue that, because it does not need to make a profit for shareholders, it could charge low German-style interest rates on mortgages and business loans. Sparkasse would provide expertise and support but the €30m initial funding would need to come from State resources.

If the report is positive towards the Sparkasse-type model, there are plans to establish a stakeholder group to prepare a funding model and adapt it to Irish regulations and culture, said a source.

But according to sources close to the process there are still numerous hurdles, with an expectation that key government officials may be wary of the disruptive impact such a model could have on the local lending operations of pillar banks.

Similar fears around competition also exist within the credit union movement.

But some there see potential synergies that could allow credit unions greater access to SME and mortgage lending, it is understood. At least three Irish delegations may visit Germany over the coming months to see the banking model in action, including the Oireachtas finance and business enterprise committees, as well as Fingal officials and councillors.

“We’re anxious to see the bank working in practice and to meet local government to hear how it works for them,” said Fingal Fine Gael councillor Tom O’Leary, who has backed the plan.

German local government officials sit on the governance boards of regional Sparkasse banks, but a separate executive board made up of qualified individuals is tasked with day to day running.

O’Leary said he was aware of a lot of support for the plan within his own party and that the selection of Fingal — close to Taoiseach Leo Varadkar’s political power base — as a pilot area was significant.

Westmeath Labour TD Willie Penrose — also a vocal advocate of the model — told a recent Oireachtas agriculture committee meeting that it could provide money to people “at reasonable prices”.

“I imagine the bank representatives will tell me they are doing that,” said Penrose, pictured. “If that is the case, why is there hue and cry throughout the country? A well-to-do farmer dealing with one of the institutions before the committee asked me to keep highlighting the need for a Sparkasse model or a similar model in this country to give ‘those boyos’ — that is what he called the banks — a rub of competition. “The farmer in question works extremely hard. He works 18 hours a day. He is working the flesh off his bones to meet his commitments. He believes the banks are charging too much.”