High time Big Two banks’ stranglehold on lending and uncompetitive rates are tackled

WE have created a monster in the banking sector. Well, make that two monsters. Banks in this country are almost twice as profitable as the rest in the eurozone and have managed to increase their profitability since the financial crash 10 years ago. That is some achievement given the economic upheaval and the impact on ordinary people.

A Central Bank report issued last week found that Irish banks are more profitable than those in other European countries. Banks here are gaining from the low cost of funds, and from the fact that they have very little competition for savings, and so pay some of the lowest deposit rates in the European Union.

Low levels of banking competition mean banks here do not have to compete for deposits, unlike banks in other countries. Separate studies have found that deposit rates paid by banks in this country are among the lowest in the EU. Mortgage rates are so high as the Central Bank has repeatedly found that home buyers are paying multiples of what is being charged in other countries in the euro area.

Earlier this month European Central Bank president Mario Draghi, speaking in Dublin, blamed a “quasi-monopoly” among banks here for the high mortgage rates.

AIB and Bank of Ireland dominate the mortgage market, accounting for 60pc of home lending. AIB made profits of €762m in the first half of this year, with Bank of Ireland making €500m over the same period.

Central Bank economist Ciarán Nevin has found that banks here are highly profitable due to what he calls “historically low levels of competition” since the crash. He looked at what is called net interest margins, a key measure of the bank profitability. It is the difference between the interest income generated by banks on the likes of mortgages and the amount of interest paid on deposits.

The only good news from the study by the Central Bank economist is that the highly profitable nature of Irish banking may attract new entrants.

A number of non-bank lenders, including An Post, Finance Ireland and Dilosk, have said they intend to enter the residential mortgage market. That is desperately needed to put manners on the big two banks in this market.

They have a stranglehold on our economic fortunes, with no signs of any official attempts to change that.

The Government does not want to upset their quasi-monopoly as it has stakes in both of them, while our competition enforcer and the Central Bank have not shown any interest in tackling the dominance of AIB and Bank of Ireland. We deserve better.