Banking fundamentally is a low cost loan producer wins business…and unfortunately the pillar banks for now are the unassailable low cost producer of any type of loan in the Irish market....simply by virtue of their deposit funding costs.
I suspect Avant gets some diversity being here in the Irish market…picks its spot to collect higher RoE relative to the risk opportunities than might exist in its home market…but when a competitor, like Avant, comes in and has to offer 2% on deposit accounts what they are signposting is that they are unlikely to be true competitor at scale (in the short run) on the lending side which is disappointing.
Given that 2% deposit rate they are basically giving up 200bps of cost to their main competitor...the sad reality is that AIB/BOI have a duopoly position in low cost deposit funding….if you factor in their quarterly fees….the two pillar banks have something close to a negative cost of deposit funds (most definitely when you add in current ECB rates on excess deposits)....more competition is good but when you look at AIB/BOI's funding cost its desperately hard for a competitor to enter and compete effectively on a mainstream mortgage product at a scale anywhere close to what AIB/BOI does.....to the extent that AIB/BOI ever got greedy (by expanding their spreads) they might create a recipe for a competitor to enter but I just don't see them being that dumb. The recent uptick in European mortgage rates that transmitted in a very minor way to underlying Irish mortgage rates showed the pricing strategy of the Irish banks. They will always price at the edge of where it becomes uneconomic for a competitor to enter.
The last wave of competition that came into the Irish mortgage market here from overseas lenders leading up to the GFC was what I would characterize as uneconomic lending......they barely upset or unseated the deposit franchise of the Irish banks.....how they competed was wholesale funding but the real dirty secret was that the foreign banks, mainly UK, were willing to take ever smaller and smaller spreads on loans....in turn lowering and lowering their return on assets for their lending book which they solved for by increasing their turns of leverage to get something approaching a reasonable RoE (which even then the northern rocks of the world drove down to ridiculously low levels too). The original sin was the regulators let them do that, the second sin was that the Irish banks followed them into the mud. Anything like that is unlikely to happen again. Regulation has cemented the duopoly position of AIB & BOI.
I say all this to highlight the fact that until you see a mortgage lender enter the market with a credible plan to twin that lending with a stable deposit book that in time might scale cost effectively to compete with AIB/BOI or alternatively with access to a low cost sticky foreign deposit franchise comparable to AIB/BOI's (which doesn't exist anywhere in Europe IMO)......competition, at scale, in mortgage lending here is unlikely to appear.
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