A new report on the Irish financial sector warns that banks and building societies will have to implement innovative strategies for the future if they are to withstand increased competition. The report, compiled by Prospectus Consultants, notes that to date, the Irish banks have only managed to react to offset the impact of new entrants such as Bank of Scotland. In the longer term, the report warns that they will have to be more proactive if they are to hold onto their customers.

With more competition expected in the years ahead it is accepted that the Irish financial institutions will have to learn to live with much tighter profit margins and rely on growing profits on a much lower cost base.

Despite the gloomy outlook though most stockbrokers remain optimistic about the prospects of the banks. Last week, Goodbody Stockbrokers, suggested the banks were significantly undervalued against their European rivals.