Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

I thank the Chairman for the opportunity to be here today to discuss matters relating to the banking sector in Ireland. The committee is aware of the many changes to our banking sector in recent years, driven by factors including advances in technology and changing consumer demand. We have also seen the exit of two key banks from the sector in Ireland, which has had and will continue to have very wide-reaching consequences. The changes under way in the banking sector are a reflection of the wider challenges the sector is facing across the world. It is because of these national and global developments that my Department is undertaking a broad-ranging review of retail banking in our country to address how the sector can be best positioned to meet current and future needs. I look forward to completing this work later in the year.

In the midst of this change, it is crucial that we recognise the interest of citizens and their priorities as we make policy. With this in mind, the Government intends to further enhance the Central Bank's existing powers through provisions to be introduced in the Central Bank (Individual Accountability Framework) Bill 2022. The centrepiece of this new legislation, in accordance with a commitment in the programme for Government, is the senior executive accountability regime, SEAR, which seeks to improve the culture of the financial sector and restore public trust in it. It is apparent that as the sector undergoes significant change, the credit union sector has the potential to play a more significant role in the provision of financial services to households and businesses. That is why my Department has conducted a policy review of the credit union sector and is developing legislation to support credit unions further.

We are doing this in awareness of the significant change that is taking place in terms of digital technology and access to cash. We have seen a shift in the way consumers and businesses are using banking services and making payments. While Ireland has historically been a relatively cash-intensive economy, significant changes have occurred, with a rapid increase in the move towards more digital technologies and new ways of banking. New players have entered the financial services sector and are offering new and innovative services to consumers. The Covid-19 pandemic has acted as a catalyst for this move towards digital payments.

By the end of the year, the European Commission will have published legislation making instant payments mandatory for participants within the EU. This means Irish consumers will soon be able to benefit from instant payments between individuals and companies. Notwithstanding the significant increase in the take-up of electronic payments, cash remains a vital part of the Irish banking system. Banks have a key role in the maintenance of the flow of cash through the economy and in ensuring appropriate access to retail banking services for all in society, including the vulnerable. In this context, I note the significant public reaction to AIB's announcement in July regarding branch changes. I welcomed the bank's decision at that time not to proceed with the proposed changes to customer services in certain branches.

In February 2021, NatWest began the process of winding down its Ulster Bank business in the Republic of Ireland. Shortly after, on 16 April, KBC Bank announced its withdrawal from the Irish market. All of this will be done in accordance with Irish legislation, including the Central Bank's codes of conduct. The Central Bank has clear requirements that apply when firms cease operations or transfer operations to another entity. Last week, it published an update showing an encouraging downward trend of accounts in the withdrawing banks. The banking sector must continue to ensure adequate resources and training. My officials and the Central Bank are engaging with all stakeholders to ensure they receive the best possible customer experience. Customer protection is at the forefront of our engagement and consumers must be certain the entity they are banking with is trustworthy, efficient and accountable.

This leads me to the SEAR. The Central Bank (Individual Accountability Framework) Bill 2022 was published on 28 July this year and will progress in the coming months. It will drive greater accountability in the financial sector and raise the standards of expected behaviour for individuals and firms to achieve better outcomes for consumers and improve the sustainability of the financial system. I believe it will drive positive change in the culture of the financial services industry, including enhanced accountability, and provide for clearer sanctions against individuals who fail in their role.

The Central Bank will hold public consultations on the implementation of the Bill.

As I mentioned at the start, last November my Department began a review of the retail banking sector. Stakeholders were invited to make submissions and we launched a public consultation on 16 May at the retail banking review dialogue. We have now received 90 submissions and I expect to receive the report of the retail banking review in November. Part of our consideration refers to the credit union movement. It is a cornerstone of community banking and provides a wide range of services. The Minister of State, Deputy Fleming, and my Department have carried out extensive stakeholder engagement and we have received input from a wide range of stakeholders to develop a comprehensive set of policy proposals. The Government announced and approved these proposals in July and drafting of the Bill is under way. Department officials are engaging with the sector through the quarterly stakeholder round table and with the Credit Union Advisory Committee.

I turn to the State’s role in the Irish banking sector. It is important to remember that the aim is to strike a balance between intervention and allowing the sector to operate with commercial independence, such that competition and innovation are not stunted. The Bank of Ireland share trading plan has continued in recent months and I expect to be able to announce shortly that the State’s directed shareholding has reduced to zero. This will be an important milestone in delivering on the Government’s policy of returning the banks to private ownership. Proceeds generated from the share trading plan since its launch will be well over €800 million. In June of this year the State sold a 5% stake in AIB, which reduced our shareholding to 63.5% while generating €305 million for the Exchequer. Prior to this transaction, a share trading plan was in operation which provided for a low-key and low-cost resumption of share sales after a gap of more than four years. It will resume operating at the end of this month and the Department of Finance will continue to monitor markets for future opportunities to sell down more of our shareholding through larger transactions. In the past year we have made great progress in strengthening the position of Permanent TSB in the market and in protecting citizens’ investment in the bank. Permanent TSB now has greater scale and has a more important role than ever in providing meaningful competition in Ireland. Although Permanent TSB will primarily fund the transaction from internal resources, the bank is expected to issue shares to NatWest also. As a result, NatWest will hold 16.66% of the issued share capital of Permanent TSB while the State’s shareholding in Permanent TSB will reduce from 74.9% to 62.4%. However, we will then have a smaller stake in a much larger and more attractive bank in the years ahead. I look forward to seeing Permanent TSB playing its role as a supporter of growth and jobs in Ireland.

The banking sector in Ireland is going through considerable change. My officials and I are working to ensure that amid this change consumers are fully protected and the banking sector, which is integral to the economy and to society, is strengthened for the future.