Society believes mutual route delivers long-term value for its members. Dominic Coyle reports

The EBS has reasserted its commitment to remaining a member-owned building society, announcing a range of initiatives designed to set it apart from its non-mutual rivals.

As rival Irish Nationwide gears up for demutualisation and a trade sale as soon as the necessary legislation is in place, EBS chief executive Mr Ted McGovern said his institution was looking to refocus on its core business of delivering value to members, free from the pressures than can distract his non-mutual rivals.

"We want to get out the message that long-term value is something meaningful at EBS," says Mr McGovern. "We do need to make a certain amount of profit but we do not need to have a bottom line heading onwards and upwards inexorably. We have looked at our level of profitability and we have said we can put something back."

As a start, the EBS yesterday announced a cut in its standard variable rate to 3.25 per cent, making it once again the most competitive in the market. The EBS was traditionally the market leader on mortgage rates but the arrival of Bank of Scotland and the determination of Ireland's largest bank AIB not to cede market share to the newcomer drove rates down sharply.

Mr McGovern maintains that the EBS has still provided the best value for mortgage-holders over the past 10 years, citing figures produced for the group by Ernest & Young that show an average interest rate of 5.93 per cent over the past 10 years compared to 6 per cent-plus for its nearest rivals.

Still, as it restates its commitment to mutuality and looks to reposition itself in the market, EBS accepts that the products it offers its 400,000 customer base needs to change. To that end, it is offering a tracker mortgage product, also at 3.25 per cent, to both new and existing borrowers and is abandoning new business discounts.

"The battlefield in recent years has clearly been for new business and the back book, the existing borrowers, is disgruntled," he says. "We see getting rid of new business incentives as a way for us to demonstrate our commitment to all our members as a mutual."

Another initiative to highlight its difference from mainstream financial service providers is the members-only, one-year, fixed-rate bond the EBS will launch later this month. Open only to members who have been with the group for five years of more, it will offer 2.75 per cent on sums between €5,000 and €20,000, better than any other rate in the market and designed to reward loyal customers without risk.

It sees this as the start of a series of products tailored to reward members for sticking with the mutual vision. "We intend to do this kind of thing reasonably regularly," says Mr McGovern.

The society has been active in ensuring the impending Building Societies Bill will provide EBS with the tools to continue and develop as a mutual, while granting Irish Nationwide its desire to go public and into the arms of whatever suitors it finds there.

For Mr McGovern the key issues are measures to widen the definition of membership to include a wider range of customers - for instance those purchasing insurance or investment products or holding credit card accounts - and the granting of access to new ways of raising capital to take account of modern market realities.

During 2003, the EBS undertook extensive consultation with members. What it threw up was the not-unexpected antipathy of the public to mainstream banks, the need for a broader range of products to serve customers' increasingly sophisticated financial requirements, an avoidance of gimmicks and the importance of investing in the community.

EBS has started a community investment group that is allocating a portion of its profits to invest in the communities where it operates. In 2003, nine groups were set up; by the end of this year, there will be 52.

As the society examined how to reinvent itself, it has spoken to many mutual banks in Europe. Mr McGovern acknowledges that there are attractions in joining forces with another mutual, such as Rabobank, which recently acquired ACCBank, but he insists that is far from the only option. "It would be premature to say how our contacts with any group could be converted in collaborations or alliances, although we believe it would be right to have alliances with groups that are of like mind.

"There is nothing imminent at all. The main thing right now is the need for the new legislation," he says.

Mr McGovern argues that the presence of a strong mutual financial services market is a tether on the profitability of financial services sector and so a benefit to its customers.

He cites a study by PA Consulting undertaken last year for the banking sector in Britain which indicates that greater mutuality share leads to lower market profitability.

He is fully aware of the potential for EBS in opening up to the broker market but is conscious that it can only be done in a way that protects members' interests. "You have a potential conflict of interest in that we are looking to build a customer membership organisation and the broker too will see those customers as his. Still, we are fortunate in that brokers are beating a path to our door.

"You cannot deny that it is a massively important channel. For us to say that we do not need that market, I am not sure we can hold to that position in the long term," he acknowledges. "The challenge is to make it co-exist with the membership business."

There are ways around it and he is open to the possibility of setting up parallel product channels with different pricing or conditions attached.

"Ultimately, EBS remains committed to being a mutual. We have always believed that this is in the best interests of members. It differentiates us in the market and it also benefits real competition in Irish financial services," he says.