ACCBank has come a long way since it was effectively insolvent 10 years ago. Without the mighty support from the State it might not have survived. But it was that link with the State, binding it to the cyclical agricultural sector, that caused it much pain.

The latest profit of u£15.7 million for 1997 looks positively glowing when contrasted with the loss of u£15 million 10 years ago. While most of the ratios are moving in the right direction, the latest results, reiterate the need for a strong strategic partner. Without this linkage, ACCBank will continue to be a drag on its shareholder, the State.

It seems to be forgotten that the Minister for Finance had to put in u£5 million in new equity last year, bringing its equity investment up to u£44.4 million. That extra injection is well ahead of the u£3.6 million dividend, up from the u£2.8 million paid in 1996. As it expands, the bank (like others) will need a continual top up in its equity. As competition remains intense, the net interest margin - it fell from 3.13 per cent to 2.63 per cent last year - will continue to contract. Indeed this trend could well accelerate as our currency becomes the euro on January 1st 1999. The recent independent survey on the profitability of banks and building societies found that Irish financial institutions had the highest interest margins. Putting it another way this means that domestic users of Irish banks have been paying dearly and the Irish banks, as a result, have profited . Is it any wonder that Irish banks have had the financial muscle to expand internationally?

That survey covered the period 1992-96. In 1996 it showed the interest margin (bank earnings from loan interest as a percentage of interest paid on deposits) was almost 25 per cent more than the next best performer, Britain. This margin, according to the survey by Datamonitor European Banking Database, showed the margin at 183.2 per cent in Ireland, 158.3 per cent in Britain and 123.4 per cent in Germany. The main Irish institutions recorded a 1.6 per cent return on their assets in 1996. This compared with 1.1 per cent in Britain and 0.3 per cent in Germany.

While interest rates should converge among the eleven countries participating in the single currency, competition between the national banks should ensure a divergence in rates to customers. Corporations unfettered by currency changes will be able switch their allegiances almost at a whim. Electronic banking should also facilitate personal borrowers and depositors. Against this background, ACCBank (and other small banking groups) has not a sustainable future. It has , of course, come a long way under the purposeful and successful direction of managing director, Mr John McCloskey. Farmers now account for only 22 per cent of the loan book which is dominated by business accounting for 51 per cent. This move away from a reliance on agriculture has paid off. Last year, for example, the business loan book rose by 29 per cent to u£705 million , the personal loan book increased by 34 per cent to u£383 million while farming only managed a 3 per cent rise to u£311 million. Also the proportion of revenue from non-core banking is rising. Although the cost income ratio fell from 67.9 per cent to 66.6 per cent (excluding exceptional costs) this is still relatively high compared with other financial institutions.

ACCBank recognising where its future lies is , in conjunction with all its employees, preparing a plan on its future. This follows a rejection by the unions, of a previous management plan favouring the selling of 20 per cent to 30 per cent to an international partner with a commitment of a flotation, at a later date. The unions preferred option was a merger with TSB prior to a stock market flotation with a provision for a staff shareholding of 14.9 per cent at a preferred price.

That plan is expected to be presented to the Minister for Finance in three month for his decision on a strategic partner. It would make a lot of logical sense for the three financial groups, ACCBank, ICC and TSB to be merged but considering the rationalisation needed, with big job losses, the Minister for Finance will hardly be brave enough to grasp that nettle. Also such a grouping would need substantial fresh capital.

So it looks as if ACCBank will be considered on its own. Last year's dividend was covered 3.3 times and Goodbody Stockbrokers reckons that reducing that to the industry average of around 2.5 times would restrict the bank's to growing its risk weighted assets at a rate of some 9 per cent to 10 per cent per annum without further compromising its capital position. The Goodbody review of the three financial groups puts a value on ACCBank of between u£175m million (where the acquirer has a presence in the Irish market) and u£235 million (where the acquirer is outside the Irish market) after allowing for an equity injection of u£14 million.

Either is well worth going for, provided the right partner is chosen. But the sooner the better.