The Irish Bankers' Federation believes an independent study will confirm that consumers and businesses get good value for money, writes Jim Bardon

The Competition Authority has confirmed that it is to conduct a study into the banking sector.

It is currently preparing draft terms of reference for the study which will be published for comment so to enable the public and interested parties to offer views and information.

The Irish Bankers' Federation (IBF) believes an independent study will confirm that consumers and businesses, by and large, get good value for money, competition is strong, the market is open to new entrants and, in European terms, Ireland is at the lower end of the concentration spectrum.

In looking at the Irish banking market, the first point to note is that there are currently 87 banks operating here, of which 31 are predominantly engaged in domestic business.

Even those banks with predominantly foreign business account for about 8 per cent of the domestic deposit business and 13 per cent of the domestic lending business. The retail banks account for just over 50 per cent of the deposit market and 45 per cent of the lending market.

A further 190 European banks have advised the Central Bank of their intention to provide banking services into the Irish market without establishing a presence here. The conclusion to be drawn is that we have an open banking market in Ireland and, provided that certain prudential criteria are met, any authorised institution is entitled to enter the market.

Another popular perception is that we have one of the most concentrated banking markets in Europe. The latest published data available on concentration stem from an European Central Bank (ECB) study undertaken in 1999 using 1997 figures.

The study looked at both loans and deposits of the five largest credit institutions in each member- state as a percentage of total loans and deposits in those countries. In both cases, Ireland came in ninth out of 15 countries and was well below the EU average. In the case of loans, the Irish figure was 46.8 per cent while the highest country, Sweden, was 87.8 per cent. In the case of deposits, Ireland was at 50.2 per cent while Sweden, the highest, was at 88.9 per cent.

Having regard to the number of mergers at European level which have taken place since then, we hope that the Competition Authority will up-date that survey.

Perhaps the area where perceptions need testing most is the area of bank charges. Section 149 of the Consumer Credit Act 1995 requires all credit institutions to notify all existing fees and charges to the Director of Consumer Affairs and to apply to the director whenever they wish to amend those notified charges or to introduce new charges or new products.

The net effect is that there has been very little movement in charges since 1994. For this and other reasons, we believe Irish banking charges to be internationally competitive. To most people, that would seem to be a good thing.

However, Section 149 has the effect of stifling innovation and distorting competition. It is the view of IBF that Section 149 is in contravention of Article 81(1) of the Treaty of Rome in that it restricts the freedom of credit institutions to determine their own charging structures. We hope that the authority will address this issue in its study.

In looking at interest rates and charges, our critics tend to hone in on particular areas. Bank products are not one-dimensional and whether or not they represent value for money is dependent on a range of factors, one of which (albeit an important one) is price. No one institution is going to be the cheapest across the full range of products it offers nor, for that matter, is it going to be the dearest.

Most institutions will have a product mix which should be judged on the same basis as we judge a basket of groceries from different supermarkets. Even within the basket of the cheapest supermarket, there will be products which are more expensive than their competitors.

Most people accept this and are prepared to pay over the odds for these products in order to obtain the cheapest overall result. Finally, competition is not just a matter of price. To most consumers, quality and convenience also enter into the equation and should be in any assessment.

The proposed study has the potential to distinguish perception from reality in the Irish banking market and if it does this it will provide a factual base upon which informed policy decisions can be taken in the interests of consumers, financial institutions and the Irish economy generally. We look forward to the process.

Jim Bardon is director general of the Irish Bankers' Federation