The financial crash of 2008 has cast a long shadow over the Irish economy and particularly over the banking sector. As big Irish banks were bailed out and foreign players left, competition shrank and customers suffered. In this context the announcement from Bankinter of Spain that it will take a further step into the market here is welcome. It is 19 years since a major lending bank entered the market and so the Spanish bank’s move is clearly positive, even if the likely scale of its operations here remains to be seen.
Bankinter first entered the market here in 2019, buying AvantCard, a credit card company, before expanding into the mortgage market under the Avant Money name. Having had some success here as a niche player competing with the bigger domestic banks, it is now planning to offer savings products in the Irish market, using its Spanish banking licence. Already some smaller players are active in this market, but Avant Money looks likely to present some stiffer competition to the major players.
There is no doubt that the entrance of Avant Money and some other smaller competitors into the mortgage market has increased competition. In turn this has meant that mortgage rates for new borrowers here now compare more favourably with the EU average than had been the case.
More competition for deposits will also be welcome, as rates for savers here remain relatively low – given that the Irish banks already have big deposit books, they may, however, be slow to respond to a new entrant. A key marker of the impact of Bankinter’s move will be the number of people it can encourage to switch accounts from the main banks.
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In its November 2022 review of banking, the Department of Finance pointed to the competitive shortcomings in the banking sector – Ireland has fewer banks than in many other similar-sized countries, even if it is not unusual to see three or four who dominate. The review predicted that competition would increase from new digital players targeting parts of the market, without taking on the cost of setting up a physical presence. But it added that it would remain fragmented, with no players likely to establish a major physical presence, or a full-service offering.
In this context, the move by Bankinter is encouraging, if not a quick solution to the competitiveness issues in the market. The Irish banks have boosted profits significantly in recent years, helped in part by the strong economy but also by widening margins between borrowing and lending costs.
The importance of competition is to squeeze this margin and also to encourage the domestic banks to improve their product offering and customer service, both areas where “could do better” regularly appear