Ms Francesca McDonagh:

I realise I am not going to do that very good question justice, but I certainly would want to be part of an ongoing discussion about the future of Irish banking, as I said in my opening statement. I will outline what I see as the three challenges facing the European banking sector which are not unique to Ireland and I will outline a couple that are more unique to Ireland.

First, there is a need for digital investment across all banks in Europe and the UK because of customer preference. That requires investment and the cost to digitise and modernise banks and to remain competitive against new entrants into the banking market. The second is a lower for longer interest rate environment and in the European case negative interest rate environment. Traditionally, banks have made revenue from holding excess deposits or at least having a cost for holding deposits. That has now changed and it is an expense for a bank to hold deposits. Some of those we pass on to larger deposit customers, and we can talk about that, but that is a reality that has significantly reduced revenue streams for all European banks. The third, and perhaps this is not common across all of Europe but it is for some markets, is muted credit formation. Part of that is uncertainty about Brexit and part of it is Covid-related. Some of it will be dissipated, hopefully, by economic recovery and Brexit in the rear view mirror, but there has been muted credit formation, particularly in Ireland. Banks are losing money on deposits and they are not necessarily growing their lending books.

Two features are specific to Irish banking. One is size. There are two big banks, although in a relatively small market. Retail requires scale and economies of scale. That is why one may see that smaller banks in a small market are not able to achieve minimum profitability hurdles and they may divest. We have seen that over the years.

The last point I wish to make, which is quite topical, is the relatively high-risk ratings attached to Irish lending because of the last global financial crisis. That means more capital must be held for every euro that is loaned, for example, for an Irish mortgage. That results in a higher level of pricing in mortgages. Irish banking may have relatively high mortgage pricing but that does not necessarily mean it is profitable.

As a result of all of the above, the Irish banking sector is challenged in achieving the type of returns that shareholders expect over a period of time. Our response to that is to innovate and digitise, which we are doing, be more cost-efficient, and we have done that, and grow. Up to the Covid pandemic we were growing our lending book and I very much hope to support the growth and recovery of the Irish market. There is also diversification of income, such as growing our wealth and insurance business, and increasing the profitability of our UK subsidiary. Those are the challenges we face. I would be happy to continue the discussion with the benefit of more time at the Deputy's convenience.