While Irish banks bask contentedly in record profits, the customers they depend on are starting to grow restless, writes Kathy Sheridan
High fives for the bankers. Shots of expressionless, pinstriped city gents in unlikely sylvan settings adorned the business pages this week. Respect. It cannot be easy for a man to keep the grin off his face when he's being compared to a rocket.
"AIB firing on all cylinders posts H1 up 47pc at 1.2bn," blared a headline.
The words might be gibberish to the average Joe but he gets the message: another profit "surge" for a bank, in this case AIB's staggering €1.214 billion pre-tax profit for the first six months of the year, smashing its full-year record of €1.7 billion profit for 2005 - or €6.8 million for every working day. Bank of Ireland had already trumpeted pre-tax profits of €1.39 billion for the year through March.
To anyone familiar with footage of panicky customers storming a bank, this should be good news. A strong banking sector means your money is safe. It affects everyone, including Joe, when the likes of AIB gets it wrong. The ICI levy business still hurts, if only in principle.
So why does Joe feel sick, even a tad homicidal, when he reads about bank profits? It was the banks' misfortune that the results came in a week of yet another rise in interest rates, the fourth this year. A further two to come could add another €3,000 to the average mortgage repayment this year.
Rampant increases in gas, oil and petrol portend a winter of what Eddie Hobbs predicts will be "fuel poverty".
"People caught in a bear trap of jumbo mortgages, an extra child (because childcare costs have gone up rather than down), heating, and pressure coming on to mortgage debt, are dipping into lifestyle debt. Year by year, they're adding another €5,000 to the credit card, betting on getting a big salary rise," says Hobbs. "It's like a piece of elastic. You stretch and stretch it for years and now it's endgame."
By this analysis, the chickens labelled mortgage debt, credit-card debt and soft loans are coming home, clucking loudly, albeit still some distance from the roost.
"The banks were, still are, the driver," says Hobbs. "They made soft credit very available, marketing through doors [by post], offering increased credit-card limits."
He recalls a couple - featured on RTÉ's Show Me the Money - who nearly lost their home as a result but, with advice and discipline, managed to stabilise their situation.
"Six months later, the credit-card company that had been threatening them with the loss of their home was offering them a new credit card and limit."
Just 18 months ago, Bank of Ireland began offering its online customers pre-approved loans, "thumbing its nose", in the words of the Consumers' Association of Ireland (CAI), at contemporary thinking on the issue, which held that unsolicited pre-approved loans were "a potential predatory practice".
Of course, it was not the only offender. The banking sector in general has gained a reputation for such dodgy practices as raising credit limits without consulting the customer.
Add to that the general swagger and power-trippery of a sector itself hardly without sin. There have been the unsavoury revelations in Dáil committees and tribunals, the executives cowering before a stunningly indebted Charles Haughey while ordinary Joes struggled under their unforgiving lash, the ratcheting up of interest rates on ailing businesses in the bad years, and the sale of banks' own insurance and payment protection products to vulnerable borrowers with the implicit suggestion that these were mandatory purchases. And then there are the continuing wheezes such as being told that it will take a risible three to five working days for a sum of money to be whizzed electronically from one account to another, during which time the customer's money is generating further profit for the bank.
Only months after the Bank of Ireland's pre-approved loan offer last year, some 60,000 of its customers were affected by a payment error by the bank, which later admitted to "inconsistencies" in applying refunds of unused premiums in payment- protection insurance policies. A few weeks later, it was revealed that, for nearly 10 years, AIB had been overcharging customers for certain types of foreign- exchange transactions.
On top of all this, Joe has noticed that visiting his branch now means joining a long queue, and that you might as well be talking to the porter as the manager for all the discretion he has. When the chicken droppings hit the fan, the summons will issue from some faceless creature at systems HQ, to whom you are a number.
WHAT FEEDS JOE'S resentment above all, however, is not that the banks make a profit; it's the magnitude of those profits that curls his hair. When the Taoiseach defended AIB's profits in the Dáil back in February, he said he was "glad that AIB is profitable", implicitly placing it on a par with any run-of-the-mill business. But money is a highly emotive issue. Those who hold it wield frightening power over little lives. They must surely be more accountable than those who sell us soap powder.
In 2003, the two main Irish banks made almost three times more money per customer than the average European bank, according to a report by JP Morgan. By this measure, AIB topped the league, making €344 per Irish customer, with Bank of Ireland a close second at €339. The European average was €123. The report estimated that AIB made €693 per mortgage customer and Bank of Ireland €707, while the European average was €221.
The banks robustly questioned the quality of the JP Morgan report, saying it was flawed and based on a lot of estimates and assumptions. But only three weeks ago, it emerged from a European Commission report that Irish banks are indeed (and have been for some years) the most profitable in Europe.
Pre-tax profits made by the Republic's banks between 2002 and 2004 represented around 50 per cent of their total retail income, while the European average was 25 per cent.
Joe wonders at the costs such profits must carry for him in higher margins. Resentment grows.
The Irish Bankers Federation (IBF), bursting with pride at its feats but mindful of a few million resentful Joes out there, has wheeled out the artillery.
"We are making no apologies for profitability," says IBF spokesman Felix O'Regan. "What probably has Joe dismayed is the notion that the profits are being made at his expense. But that is simply not the case. We have independent data to show this. It demonstrates that Irish banking is profitable and that consumers here are being well-served.
"What is driving profit is the fact that we have the fastest-growing economy in Europe for the past 10 years; the same backdrop as has allowed the small business sector to become the most profitable in Europe and has allowed the multinationals based here to be among the most profitable contributors to global group profits and has allowed the Irish banking sector to be one of the most profitable in Europe . . . A greater concern would be if we were not doing very well."
Sure enough, the IBF charts suggest that Irish banks are the fourth-best performers in Europe for return on assets, have the highest profit ratio and the lowest cost-income ratio. In short, they are not merely money-making machines but also ultra-efficient.
The driver behind this lies in one chart, which shows that in 10 years, banks have handled a 538 per cent increase in household lending, a 482 per cent increase in business lending and a 211 per cent increase in household deposits. In plain figures that tell a story about what David McWilliams calls the "liberation" of credit in those 10 years, household lending soared from €18 billion to €115.4 billion while household deposits went from €20.4 billion to €63.4 billion.
Meanwhile, two reports funded by the IBF (though based, they emphasise, on independent data) suggest that what Irish customers are paying for current accounts, mortgages, personal loans and credit cards is "very competitive by international standards, if not the cheapest, then well placed at the lower end of the price table", according to a spokesman.
The European Commission report, by contrast, focuses on fees and shows that Irish banks took a gross income (or charge) of €668 per consumer loan they issued, when the European average was €367. The hidden traps are legion, as Dermott Jewell of the Consumers' Association of Ireland, points out. Cross-Border charges on credit cards (as readers have been pointing out) are only the start of it.
However, even Joe must concede that, in this aspect, the situation is improving. To some extent, the institutions are being dragged into line, albeit kicking and screaming. The Consumer Protection Code (see panel) will call a halt to many of the questionable practices. The IBF is keen to point to the transformation of the Irish banking market, which at last is seeing some serious competition from the likes of Danske and Bank of Scotland (Ireland). The banks' own switching codes now make it easy to change banks, and some 5 per cent of current account holders have switched sides in the past year.
THE OUTSTANDING QUESTION is: how will our friendly banks behave when the chickens finally get home? Felix O'Regan says the old advice is still the best: get in at the earliest opportunity and talk to your creditor. The fact that the creditor you face is not the friendly old one of myth and legend should be no disadvantage, in O'Regan's view. A certain distancing from your branch is inevitable in these days of automated services, ATMs and online banking.
"In the so-called good old days, so much depended on the person behind the counter knowing the person in front of it," he says. "But the subjective thing needs to be taken out of it for the sake of both the lender and the borrower."
Joe might say, however, that when it comes to money and its awesome power, there must always be a subjective element.
If you're a Joe, still fizzing with resentment, consider this. The banks' own research suggests that when customers are asked about their relationship with their own bank, 80 to 90 per cent of them are "very positive". But when the same researcher then asks what they think of "banks, plural, it nosedives", according to O'Regan. It must be a subjective thing.
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