Retail Banking Review Dialogue - Minister Donohoe Keynote Speech

Check Against Delivery

Introduction

Good morning, everyone.

You are all very welcome to today’s Stakeholder Event.

As a society, and as an economy, we need a functioning banking system that helps households and businesses achieve their financial, economic and social needs. I think the importance of the retail banking sector is reflected in the wide range of stakeholders present today.

Minister Fleming and I along with my officials on the Banking Review Team look forward to hearing your views on the sector and its future.

Background to the Review

I established the Retail Banking Review because of the announcements by NatWest and KBC of their plans to exit the Irish market, as well as the branch closures implemented by some of the remaining banks in 2021. These developments caused concern for customers, staff and communities across Ireland.

These announcements followed a decade of significant change in the retail banking sector, due to difficult economic circumstances at the start of the decade and the advancements in technology and fintech in recent years.

Since the Global Financial Crisis, we have seen the number of banks reduce from twelve to five, going down to three with the exits announced in 2021.

The 22,000 staff at the five retail banks today are less half the staff numbers in 2008, including the impact of the sale of some overseas operations. Staff numbers will reduce further, of course, when Ulster Bank and KBC have fully ceased operations.

Since 2014, around 250 branch offices have either closed or are scheduled to close representing almost one third of the total countrywide network.

Brexit and the Covid 19 pandemic have further accelerated the rate of change in the sector. However, we have seen steps taken by the Government and the Central Bank of Ireland as well as within the sector, have meant that the banking system has been able to successfully manage the impact of both these events.

In fact, throughout the pandemic, bank staff continued to serve customers, helping individuals and businesses with critical banking functions.

The banks and non-banks mobilised quickly, collectively and effectively, to deliver payment breaks to consumers and SMEs, impacted by Covid-19 restrictions. This provided relief to thousands of households and businesses, and helped to reduce the stress that they were under due to the pandemic.

The response of banks during the pandemic demonstrated how critical it is that we have a retail banking sector that is resilient and capable of contributing positively to society and our economy now and in the future.

Scope of Review

The focus of the Review is on the retail banking services used by Irish consumers and SMEs every day. They’re the bread and butter services that we cannot do without. By this, I mean current and savings accounts, consumer and SME credit, mortgages and access to services such as cash and payments.

This Review is not just about the traditional retail banks. It is about all the providers of retail banking services to Irish consumers and SMEs including the traditional banks, the digital banks, the credit unions, An Post and the non-banks providing credit to SMEs and to consumers.

Similar to other sectors, digital technology or fintech is changing the way banking services are provided to customers, which in turn is also enabling changes to the business models of traditional providers.

The Review will consider the impact of recent changes, and potential new changes, on consumers and SMEs. It will pay particular attention to ensuring that these changes do not result in vulnerable consumers being excluded. Indeed, “access” is a core issue, and a key focus of the Review will be on ensuring that consumers and SMEs have appropriate access to the retail banking services that they need.

The Review will seek to identify policy and other initiatives that my Department, the sector, the Central Bank and other stakeholders can implement to ensure we have a fit-for-purpose retail banking sector appropriate to the times that we now live in, and with the capability to deliver effectively over the next decade.

The public consultation

It is critically important that we hear from and listen to all stakeholders.

In the next presentation you will hear the results of a consumer survey commissioned from Behaviour and Attitudes to inform the Review.

The public consultation that we are launching today will provide a valuable channel for stakeholders to input on:

• How sectoral changes can be managed
• How consumers and SMEs can be protected?
• What changes do you expect to see in the retail banking sector over the next ten years?
• Does the outcome you envisage work for you, as a consumer or as a business?
• If it isn’t, we want to hear your ideas on what needs to change.

Please tell us your views on consumer choice, competition, and importantly, whether you have proposals on how the choice or experience of consumers and SMEs can be improved.

Are current or potential providers of retail banking services facing issues such as barriers to entry, profitability or capital challenges, as well as staffing and other financial or operational issues?

In recent years, the trend towards digital banking has meant bank branch closures nationally. A related impact for consumers and SMEs is more limited access to cash as ATMs are withdrawn. Businesses, many of whom continue to trade in cash, can face increased difficulty lodging that cash to their accounts. The issues of branch and cash services are key themes in the public consultation.

The public consultation process will conclude on the 8th of July and I would encourage you to engage meaningfully with the process that we are launching today.

Managing change

The withdrawal of KBC and Ulster Bank is an immediate challenge for consumers and SMEs as they need to switch their current and other accounts to new providers. I am sure the banking sector will rise to this challenge. It will require an efficient, collective and effective response from all the remaining providers in the retail banking sector.

It is important that all stakeholders in this process play their part in ensuring it is carried out successfully, with minimal disruption for all impacted customers.

Legislative developments

It is important to highlight that, separate to the Review, a number of EU and domestic legislative initiatives that will impact the retail banking sector are being developed, or have recently been completed.

The EU initiatives include the Crowdfunding Regulations, the forthcoming transposition of the Non-Performing Loans Directive, a draft Consumer Credit Directive and the Digital Operational Resilience Act.

With a focus on my role as President of Eurogroup, the delivery of an ambitious work plan to complete Banking Union is a priority especially in light of the geopolitical situation and Europe’s investment needs. Banking Union, complemented by Capital Markets Union, will reinforce the euro area’s financial stability and help secure funding for economic growth and for the digital and green transitions. On 3 May I tabled my draft work plan to Eurogroup and began negotiations with my fellow finance ministers with the aim of reaching a political agreement to present to EU leaders at the end of June.

On the domestic front, the Central Bank (Amendment) Bill 2022 will make a significant contribution to the improvement of governance and trust in the sector. The introduction of a senior executive accountability regime, SEAR, will place obligations on firms and the senior individuals within them to set out clearly where responsibility and decision-making lies. The Bill will also introduce conduct standards for individuals and firms, imposing binding and enforceable obligations on all regulated financial service providers and relevant individuals working within them with respect to the standards of conduct expected of them. The Bill will be published shortly.

The Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act 2022, which comes into effect today, means that consumers will benefit from the protections of the Central Bank’s Consumer Protection Code when they avail of hire purchase, including personal contract plans or PCPs as they are better known, consumer hire agreements and indirect credit, including Buy Now Pay Later. The Act also imposes a 23% APR cap on lending to consumers while the Consumer Credit (Amendment) Bill 2022, currently before the Oireachtas, will reform the moneylending sector and impose statutory interest rate caps on the types of lending undertaken in that sector.

Conclusion

The retail banking sector is undergoing a period of significant change. Some long standing providers are departing while we are seeing new entrants and other providers taking on expanded roles. In addition, technology is driving a fundamental shift in how the vast majority of services are delivered with significant implications for consumers, SMEs and the wider economy.

The recent announcements in relation to Ulster Bank and KBC, and branch closures, give us cause to reflect on the sector's structure and consider its future. Advances in technology, the entry of innovative fintech players and the expansion of non-bank lending mean we are moving to a more diverse banking sector. The increasing role the credit unions and An Post play in the provision of banking services in the community are also a pivotal element of the conversation.

As you are aware, the programme for today includes three breakout sessions dedicated to the specific themes of Consumers, SMEs and the Retail Banking Model. The topics for consideration at each of the breakout sessions are consistent with the Terms of Reference for the Review. These sessions provide the opportunity for you to actively discuss the issues and to put forward suggestions to support the work of the Review.

I look forward to a constructive dialogue today on the retail banking sector and would encourage all the participants present to actively engage in the breakout sessions and discussions during this Public Dialogue. In addition, I would again encourage you to make formal submissions in response to the public consultation by the 8th of July.

Finally, I would like to thank you all for giving your valuable time to attend today’s dialogue. I would especially like to thank Mary O’Dea for agreeing to act as Chair for the day as well as rapporteur for one of the breakout sessions, and Maeve Dineen and Conor O’Toole who will be today’s other rapporteurs.

Ends

Retail Banking Review Dialogue