The failure of banks to pass on ECB interest rate cuts is costing small businesses up to €85 million per annum, the Competition Authority claimed today.
In a wide-ranging study of the banking industry the authority found that small businesses and current accountholders are the big losers from the lack of competition in Irish banking.
The report identifies a number of structural factors such as the dominance of the two leading banks and barriers to access to the payment-clearing system as impediments to competition in banking.
Customers are "locked in" by the switching costs charged by the banks and so there is little incentive for banks to offer innovative products such as interest-paying current accounts, the report said.
According to Competition Authority director Dr Terry Calvani, "The bottom line is that banking in Ireland is not competitive in several iimportant areas. Customers are locked into their existing bank, it is difficult for new banks to enter the Irish market and small businesses are finding it very expensive to borrow money."
The report conducted by LECG economic consultants lists 40 recommendations for improving competition among the banks.
Among the recommendations are that the banks should be required to inform customers of the margins they earn on the difference between their advertised rates and the prevailing ECB rate.
Switching codes need also be revised and the Irish Payments Service Organisation (IPSO) should develop standardised direct debits to facilitate customer mobility.