FT: Irish Banks Passing On Just 7% of Rate Gains To Depositors. Worst in Europe.

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Lightning

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UK banks lead global rivals in passing on interest rate benefits to savers

US and European lenders come under pressure to share more of their haul with customers
www.ft.com www.ft.com

Proportion of interest rates passed on to customers (%):

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Brendan Burgess said:
Wow.

But if they have a surplus of deposits, why would they pay more than they have to?

Brendan
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Fairness. The FCA recently called in UK banks (who are way better at passing on increases) and warned the banks to treat depositors better. The FCA said that banks have a consumer fairness obligation. Why are the CBI not doing the same?

A "surplus of deposits" was bad thing in the zero/negative interest era. A surplus of deposits is now a good thing for banks. Banks can deposit the surplus at the ECB and earn 3.50%. In a functional market, banks would be competing for deposits. The Irish deposit market is not functional.

The CBI should intervene like the FCA did and also find out what needs to be done to stimulate competition.
 
Lightning said:
In a functional market, banks would be competing for deposits. The Irish deposit market is not functional.
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You might argue that the (Irish) market is dysfunctional but if that is the case the dysfunction isn't on the bank side. It's also the case that unlike the UK, Irish depositors are part of a wider euro area deposit market.

Irish depositors don't appear to be particularly price sensitive. They have access to much higher rates but don't appear willing to avail of them on mass. Perhaps they put a high value on recognised brands but whatever the reason Irish depositors appear particularly inert. I'm struggling to find a reason to blame Irish banks for that.

Banks will raise rates if they have to. We just have to acknowledge that our (in)actions plays a role in that price setting process. Perhaps the Competition Authority/CBI/ European Commission should be (more) actively promoting the benefits of the Single Market for consumers of banking services.
 
It may assist in putting pressure on the Irish banks, if the Irish Independent/Irish Times/RTE and the rest were to put some decent effort into articles showing the benefits of 'shopping around' within the EU for deposit rates. A properly constructed article showing what is available, right down to the signing up arrangements/security pros/cons, deposit guarantee/investor compensation in place, and showing amount deposited vs interest received over various periods, (comparing to Irish banks) might open the conversation, and encourage Irish depositors to realise it's not that difficult to deposit EU wide.



Some articles are out there, but they are light on content (a line or 2 about 'some EU banks like Raisin" etc). And articles should be critical of the Irish banks, for the reasons outlined earlier in this thread.
 
Banking in Ireland is not dysfunctional. Especially when it comes to deposits. There is plenty of competition. Government are welcome to increase rates on State Savings products to increase competition even more if they wanted.
 
Aren't AIB and BOI about to announced record revenue / profit? It is almost entirely driven by net interest income, which is the difference between what they pay depositors vs what they earn on the deposit from the central bank. It very much feels like a consumer protection related issue that the CBI could be pursuing for the banks. Especially in the context that they are quicker to pass on mortgage increases.

It feels like they are delaying to reap the benefits of NII after a decade of earning 0% and eating that cost.

Arguably, the lack of NII is what led banks to introduce fees on current accounts, so they've essentially got two income streams from a depositor now (ECB interest + customer fees).

I understand that banks need to be cautious on rates offered on fixed term products, but a current account interest should be more like a tracker mortgage with interest rates automatically flowing through as they change at the ECB.

Isn't the fact they aren't passing it on to savers also going against what Gabriel Makhlahouf stated about effective monetary policy? Without an increase in interest on savings, there is no incremental benefit to save more thus the increasing rates are having less impact on slowing inflation.

Frankly, I am surprised this isn't making more headlines.
 
Sunny said:
Banking in Ireland is not dysfunctional. Especially when it comes to deposits. There is plenty of competition. Government are welcome to increase rates on State Savings products to increase competition even more if they wanted.
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I'm not seeing plenty of competition for deposits, at least not in terms of a competitive need to increase the rates
 
Brendan Burgess said:
Wow.

But if they have a surplus of deposits, why would they pay more than they have to?

Brendan
Click to expand...
To win a larger share of the business and still make a profit (e.g. by placing it on deposit at ECB) - there's no such thing as a surplus of deposits if the banks can make a return on them. It's almost as if they know that if they do, their competitors will start offering the same and they'll be back to square one in terms of market size, but making less profit. So they are better off not competing, not disturbing the market and making a good profit on current market share. This is a dysfunctional market, which operates as if the banks were colluding, even if in fact they are not.
 
time to plan said:
To win a larger share of the business and still make a profit (e.g. by placing it on deposit at ECB) - there's no such thing as a surplus of deposits if the banks can make a return on them. It's almost as if they know that if they do, their competitors will start offering the same and they'll be back to square one in terms of market size, but making less profit. So they are better off not competing, not disturbing the market and making a good profit on current market share. This is a dysfunctional market, which operates as if the banks were colluding, even if in fact they are not.
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But the competitors are offering higher rates. Look at the best buys section and the main Irish banks are half way down the page in most cases.

The dysfunction is that depositors wont actively seek out higher rates. If depositors are not price sensitive why should Irish banks increase deposit rates? It serves no purpose for a bank apart from making existing funding more expensive.
 
Reducing / negligible NIM margin was the reason banks introduced current account fees some years back for customers that had over €3k in their current account account. But why reduce these €6 monthly fees / quarterly fees etc if your competitors aren’t doing likewise and you can earn 3.5% depositing funds with the ECB also. I on the other hand, if you take the view that interest rates are a close to a peak and possibly fall rapidly from late 2024 onwards, it might be prudent to maintain fee income from this source
 
skrooge said:
But the competitors are offering higher rates. Look at the best buys section and the main Irish banks are half way down the page in most cases.
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The main Irish banks aren't in competition though with those best buys, outside of the fraction of the population that read this forum. If I told my Granny she should put her life savings into "Banco Português de Gestão via Raisin Bank" she'd look at me like I've two heads.
 
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Brian McD said:
Reducing / negligible NIM margin was the reason banks introduced current account fees some years back for customers that had over €3k in their current account account. But why reduce these €6 monthly fees / quarterly fees etc if your competitors aren’t doing likewise and you can earn 3.5% depositing funds with the ECB also. I on the other hand, if you take the view that interest rates are a close to a peak and possibly fall rapidly from late 2024 onwards, it might be prudent to maintain fee income from this source
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Exactly my point, the Banks are now earning twice from customers Fees + ECB Rate. When rates were zero that equation looked like Fees + 0% (excl negatives), now it is fees + 3.5%.

The deposit rate should flow through to customers automatically minus a spread from the bank for costs. If they can pass the tracker rate on straight away, surely they can do it for current accounts as well.
 
Corola said:
The main Irish banks aren't in competition though with those best buys, outside of the fraction of the population that read this forum. If I told my Granny she should put her life savings into "Banco Português de Gestão via Raisin Bank" she'd look at me like I've two heads.
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In the greater scheme of things rising rates and decent (before inflation) deposit rates have only re-emerged as an option in the last year.

I think more could be done to help people with the wider options availables. I just looked at the ccpc website and you'd be forgiven for thinking ptsb was the only bank offering a fixed rate savings product to Irish savers. @Lightning does a fantastic job of staying on top of the offers for which I'm sure has helped many on here earn a few extra euros.

But to your point ultimately there is competition - there are alternatives available that offer much better rates on savings if people are willing to avail of them.

Like all goods and services it pays the consumer to shop around. Value for money is never handed to you on a plate but neither is opening a bank account a particularly arduous ordeal.

Now if people are only willing to save in a bricks and mortar bank that's within a 5 mile radius of their home or decide it has to have "Irish" or "Ireland" in its name then that is their choice to make but they also have to acknowledge they are limiting their own options.
 
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The FT have another great article today regarding BoI depositors.

Bank of Ireland: deposit glut yields bumper earnings

One potential risk to the Irish lender’s earnings from deposits lies with the European Central Bank
www.ft.com www.ft.com

  • 60 billion of Bank of Ireland deposits are being paid zero (60% of their deposits) in current accounts!!!
  • A good chunk of the remaining 40 billion of deposits are also at zero in instant access accounts.
  • Bank of Ireland have passed on just 5% of interest gains to depositors and have pocketed 95%.
  • Contrast this with NatWest who have passed on 75% of interest gains to depositors.
  • FT blames the reduction in competition in the Irish banking market as the cause.
 
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Lightning said:
Fairness. The FCA recently called in UK banks (who are way better at passing on increases) and warned the banks to treat depositors better. The FCA said that banks have a consumer fairness obligation. Why are the CBI not doing the same?

A "surplus of deposits" was bad thing in the zero/negative interest era. A surplus of deposits is now a good thing for banks. Banks can deposit the surplus at the ECB and earn 3.50%. In a functional market, banks would be competing for deposits. The Irish deposit market is not functional.

The CBI should intervene like the FCA did and also find out what needs to be done to stimulate competition.
Click to expand...
Spanish banks have also been strongly warned by the economics ministers to be fair instead of greedy and to pass on interest rate rises to savers as has been the normal over the years.[my humble contribution]
 
Lightning said:
  • FT blames the reduction in competition in the Irish banking market as the cause.
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For sure there are two less banks than two years ago. But there are still credit unions and other euro area banks accessible via intermediaries.

The issue is that households in Ireland are saving more than at any point in my lifetime. The supply of loanable funds in Ireland vastly exceeds demand so there is no incentive for anyone to increase rates. I doubt it would be much different if KBC and Ulster were still in the market.
 
They are making hay while the sun shines.

After years of unprofitability in the retail deposit markets they are lapping it up until they get enough pressure to change it otherwise. It will be the same for the Neo Banks who need this increase in rates to turn their business models profitable.

The Central Bank is supposed to focus on Consumer protection, which I feel in this case they are not. In the same way the Governor said banks have to pass on monetary policy from the CBI thus increase mortgage rates, they should be making similar comments about the deposit rates.

Banks are now charging consumers to have a current account whilst also making money hand over fist from non zero rates. This doesn't seem to be fair.
 
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