‘Lack of competition’ helping banks’ profits rebound
BANKS in the Republic have become more profitable since the financial crash.
At the same time, other EU banks have seen their level of profits decline, a new paper from an economist based in the Republic’s Central Bank has found.
Banks in Ireland 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 rates in the EU. Low levels of banking competition mean banks in the Republic do not have to compete for deposits.
Separate studies have found that deposit rates paid by banks in the Republic are among the lowest in Europe. Mortgage rates are so high 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 blamed a “quasi-monopoly” among banks for the high mortgage rates.
AIB and Bank of Ireland dominate the mortgage market, accounting for 60% of lending.
AIB made profits of €762m in the first half of this year, with Bank of Ireland making €500m. Central Bank economist Ciaran Nevin has found that the banks are highly profitable due to what he calls “historically low levels of competition” since the crash.