Dáil debates

Thursday, 1 July 2021

Future of Banking in Ireland: Statements

 

4:20 pm

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

We are all deeply aware of the uncertainty we face across many parts of our society and economy. That assessment is particularly applicable to where we stand with the future of banking here in Ireland. It has been a difficult year. I want to open by asserting my fundamental view on the future of banking, which is that, ultimately, the banking system should serve as the means to help households and firms achieve their financial, economic and social needs. I want to update Deputies on some forthcoming legislative and regulatory changes before turning to the latest developments in the banking sector.

I will begin with what is under way at EU level. As Ireland is part of the EU's Single Supervisory Mechanism, SSM, supervision of the Irish banking sector is informed by the EU framework and our main banks are jointly supervised by the Central Bank of Ireland and the European Central Bank. The risk reduction measures, RRMs, which are a package of prudential banking reforms agreed by the European Parliament and Commission, which amended the capital requirements regulations, capital requirements directives and the bank recovery and resolution directive, were transposed into Irish law in December. The Commission is expected to bring forward additional legislative proposals in September to bring the European banking regulatory framework further in line with internationally agreed standards set by the Basel Committee.

On the domestic front, it is important that problems in the banking sector are anticipated and prevented before they impact on the wider public. This is why we will bring forward a Central Bank (amendment) Bill to make a significant contribution in this regard. The Bill will introduce a senior executive accountability regime, SEAR, which will place obligations on firms and the senior individuals within them to set out clearly where responsibility and decision-making lies. Among other provisions, the Bill will also introduce conduct standards for individuals and firms, imposing binding and enforceable obligations on all regulated financial service providers, RFSPs, and relevant individuals working within them with respect to expected standards of conduct. Subject to the advice of the Attorney General, I intend to publish the heads of this Bill before the summer recess.

To keep up with the new ways in which people borrow money, my officials have also been working on a Bill to bring the providers of personal contract plans, PCPs, hire purchase, consumer hire agreements and indirect credit within the regulatory remit of the Central Bank. This will provide consumers with the protection of the Central Bank's consumer protection code. A review of the code is under way and a public consultation on the Central Bank's proposals for amendments will take place in 2021.

With regard to the activity of banks, Banking and Payments Federation Ireland, BPFI, data suggest that the market for new mortgage lending has rebounded quickly from the immediate impact of the pandemic. Of course, it is important that the necessary prudential and consumer protection measures continue to be applied by lenders as they serve the best long-term interests of everyone in the mortgage market.

I announced last week my intention to sell part of the State's 13.9% direct shareholding in Bank of Ireland. To date, €19.2 billion of the €29.4 billion invested in AIB, Bank of Ireland and Permanent TSB over the period 2009 to 2011 has been recovered by way of disposals, investment income and liability guarantee fees. The remaining investments in these three banks are currently valued at €5.3 billion, leaving a gap of just under €5 billion. In the case of Bank of Ireland, the State has already recorded a cash surplus to date, with €5.9 billion having been generated as against the €4.7 billion originally invested in the bank. The State's remaining equity stake in the bank is valued at close to €700 million. I cannot disclose any further details in regard to the plan at this point as it would be detrimental to maximising value for the taxpayer. At the end of the period, the trading plan can be renewed at my discretion following consultation with officials and our advisers.

In April, KBC announced that it had entered a memorandum of understanding with Bank of Ireland which could lead to a transfer of its performing loan book. This announcement came quickly after NatWest's decision to withdraw Ulster Bank from the Irish market. I welcome the announcement by Ulster Bank on Monday that it has reached a binding agreement with AIB to sell approximately €4.2 billion of its performing loan book and transfer approximately 280 of the staff who work primarily on that loan book. It is also welcome that Ulster Bank's negotiations with Permanent TSB and other parties are continuing.

Ulster Bank also recently announced that it has reached an agreement with the Financial Services Union, FSU, in regard to a severance package for staff. While this is subject to a ballot of the FSU's membership, it represents constructive progress in regard to Ulster Bank's withdrawal.

This overview makes clear that our banking sector is currently in a state of flux. The recent announcements, including those relating to the closure of bank branches, give us cause to reflect on the sector's structure and consider its future. Advances in technology, the proliferation of innovative fintech players and the expansion of non-bank lending mean we are moving to a more diverse banking sector. The increasing role of credit unions and An Post in the provision of banking services in the community must also be part of the conversation. In this context, it is absolutely necessary that we examine the banking sector, review the current landscape, consider how this has evolved over the last two decades and assess how the system can best support social and economic activity. My Department, the Minister of State, Deputy Fleming, and I will undertake a broad-ranging review to look in detail at the many relevant issues, including the expectations of the sector, possible gaps in competition and consumer choice and the key role of the banking sector in the provision of sustainable credit to the economy. The review will need to assess the availability of credit to SMEs from both banks and non-banks, consider whether there are market gaps or failures and consider options to further develop the mortgage market. It will be necessary to look at the cost of doing business for the sector, including impacts on its sustainability and the forces for change at play or foreseen, be they related, for example, to Covid, Brexit, climate change, housing, regulation or technology. Many suggestions have already been put forward and I will take them into account in developing the terms of reference. I assure Deputies that the review will consider various issues raised for this critical sector in our economy and society in recent months.

I look forward to hearing the views of Deputies. The Minister of State and I are well aware of the needs, challenges and expectations of the banking sector in our economy at the moment. We have had many debates on the sector in the House in recent months. It continues to be the case that much change is under way. As I said, I am clear in my expectations and ambitions for what that sector can do within our economy and how it can maintain and grow the employment that it provides, notwithstanding the changes that are under way and the many challenges that, for example, the branch network is facing at the moment, which led to the announcements earlier in the year. I look forward to hearing the views of Deputies. The Minister of State will take the House through other areas in the banking sector.

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