More banks would en­ter Ir­ish mar­ket with uni­fied EU bank­ing sys­tem, says Lane

Cen­tral Bank gover­nor re­sponds to ECB chief Draghi’s crit­i­cism of in­ter­est rates

The Irish Times - - Business Today - PETER HAMIL­TON

Uni­fi­ca­tion of Eu­rope’s bank­ing sys­tem would cre­ate an op­por­tu­nity for more for­eign banks to en­ter the Ir­ish mar­ket and al­low for a re­duc­tion in in­ter­est rates, Cen­tral Bank of Ire­land gover­nor Philip Lane has said.

Re­spond­ing to re­marks from Eu­ro­pean Cen­tral Bank pres­i­dent Mario Draghi on Thurs­day, Mr Lane said the con­cen­tra­tion of busi­ness lend­ing in a small num­ber of banks meant “pric­ing pres­sure is go­ing to be less”. Legacy debt is­sues, cou­pled with the Repub­lic’s high vol­ume of non-per­form­ing loans, also “raise ques­tions” for banks look­ing to en­ter the Ir­ish mar­ket, he added.

At an Oireach­tas com­mit­tee, Mr Draghi said mort­gage rates were higher in the Repub­lic than in other Eu­ro­pean Union coun­tries be­cause of a “quasi-monopoly” among Ir­ish banks and too many prob­lem loans.

AIB and Bank of Ire­land now con­trol about 60 per cent of the State’s mort­gage mar­ket, fol­low­ing the exit of over­seas lenders such as Bank of Scot­land and Dankse Bank and the liq­ui­da­tion of Ir­ish Na­tion­wide Build­ing So­ci­ety. How­ever, the av­er­age Ir­ish stan­dard vari­able mort­gage rate avail­able to home­buy­ers stands at 3.15 per cent in Au­gust, com­pared with 1.77 per cent across the wider euro area, ac­cord­ing to Cen­tral Bank fig­ures.

‘Bank lend­ing’

Speak­ing at an event or­gan­ised by the Dublin Cham­ber of Com­merce yes­ter­day, Mr Lane said the prob­lem ex­tended to small busi­nesses. “It’s clear the cost of bank lend­ing to small firms here is high com­pared to the rest of the euro area,” he said. “We now have a sit­u­a­tion where the three largest banks have a mar­ket share of 93 per cent in new SME loans. When you think about any mar­ket [in which] only three firms have so much mar­ket pres­ence the pric­ing pres­sure is go­ing to be less.”

“It’s also the case, as pres­i­dent Draghi men­tioned yes­ter­day, that the more we can unify the Eu­ro­pean fi­nan­cial sys­tem, the more we can move for­ward on the bank­ing union and the cap­i­tal mar­kets union, the more likely it is there will be more en­try [and] the more likely it is that there would be more cross-bor­der lend­ing,” Mr Lane added.

While he flagged a litany of is­sues in the sys­tem, he noted that there were no “struc­tural bar­ri­ers” to en­try for for­eign in­sti­tu­tions. The ques­tion for those plan­ning to en­ter the Ir­ish mar­ket is whether the mar­ket is at­trac­tive enough, he said, and “that’s about es­tab­lish­ing Ire­land as a sta­ble econ­omy

and pre­dictable in the le­gal en­vi­ron­ment, tax and so on”. One threat to that sta­bil­ity is Brexit, which could af­fect even those com­pa­nies that don’t ex­port to Bri­tain, Mr Lane said.

‘Sta­bil­ity risks’

“Fi­nan­cial sta­bil­ity risks arise from di­rect ex­po­sures to the UK mar­ket but there are also in­di­rect ex­po­sures. For in­stance, many firms in Ire­land are vul­ner­a­ble to in­ter­rup­tions in in­ter­na­tional sup­ply chains and in­creased com­pe­ti­tion from UK firms in the event of a fur­ther sharp fall in ster­ling.”

PHO­TO­GRAPH: EPA

Cen­tral Bank gover­nor Philip Lane: warned Brexit could af­fect even com­pa­nies that don’t ex­port to Bri­tain.

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