Urgent need for action on banking competitiveness, says watchdog

Irish Independent

29-04-2025

The watchdog, which reports to the Government on competitiveness problems in the Irish economy, says it has made three separate recommendations in the last four years highlighting the lack of robust competition in domestic banking, but work on this is still 'in progress'.
As a way of measuring competition in Irish banking, the NCPC compared interest rates for loans to new businesses in Ireland versus the euro area over the last six years. It found that Irish rates have been consistently higher, a differential that affects the competitiveness of SMEs in particular.
As of February, the interest rate in Ireland was 5.66pc while the euro area rate was 3.97pc.
There is a similar picture with bank interest rates for new loans for house purchases. Ireland had a higher rate from January 2018 until mid-2022 when the euro area experienced a sharp increase. As of February, Irish rates stood at 3.79pc compared to an average interest rate of 3.33pc across the eurozone.
'The higher interest rates in Ireland compared to the euro area underscore the need for sustained efforts to enhance competition in the banking sector and reduce costs for businesses,' the report says.
There are currently only three retail banks – AIB, Bank of Ireland and Permanent TSB. This follows the departure of several other operators, including Ulster Bank and KBC.
The NCPC, which is chaired by Dr Frances Ruane, points out that it has also made a number of recommendations about the need to reduce legal costs. However it says that this remains an issue, as does the speed of getting legal decisions, and is having a negative impact on the competitiveness of businesses in Ireland, especially on SMEs.
Its report also highlights the need for Ireland to improve its supply and use of green energy.
'There clearly remains a need for significant progress to be made if Ireland is to deliver on its offshore wind ambitions in a timeframe that meets our competitiveness requirements and our green energy targets,' it says.
'Under the Climate Action Plan 2025, Ireland is currently targeting an offshore wind capacity of 5GW. In the case of the Netherlands and Denmark, these targets are 22GW and 13GW, respectively. At present, Ireland no longer has any operational offshore wind capacity, compared to 101GW of capacity in operation in Norway, 5GW in the Netherlands, and 202MW in Sweden.'
The NCPC has done a 'look-back' exercise examining 79 recommendations it made to the Government over a four-year period. The review assesses the progress made in implementing these recommendations, and evaluates the Government's responses, between 2020 and 2023.
The NCPC found that the Government fully delivered on 45 recommendations, while another 34 are still in progress.
'These require further action and may be completed in the near future,' the NCPC says. 'The fact that it is – relatively speaking – those recommendations made in more recent years which are still underway underscores the time taken to make progress and may point to the need for a more efficient pace of delivery.'
Infrastructure is the only category to have more recommendations deemed to be 'in progress' than 'action taken'. As well as legal costs, this includes affordable housing, childcare costs, planning, energy and water/wastewater infrastructure, digitalisation, and training.
Over the last two years, competitiveness has moved to near the top of the EU agenda. This follows publication of the Draghi Report, which called on the EU to close the innovation gap with America.