The 2008 financial meltdown left a significant impact on Ireland’s economy, particularly its banking industry. The crisis led to significant consolidation in the sector as larger Irish banks were rescued through bailouts, and foreign entities withdrew their operations. Consequently, customer options dwindled. This is why the recent announcement by Spain’s Bankinter of its plans to deepen its engagement in the Irish market is promising news. The last significant lending institution entered the Irish market back in 2000, so this step by the Spanish bank is certainly a positive development. However, the extent of its potential operations in the area is yet undetermined.
Bankinter made its initial foray into the Irish market in 2019 by acquiring AvantCard, a credit card business. It later expanded its services to the mortgage sector under the Avant Money brand. After tasting some success in this market by competing as a niche operator against larger domestic banks, Bankinter now intends to offer savings products to Irish customers, leveraging its Spanish banking licence. Even though several smaller entities are engaged in this market, Avant Money seems poised to present more rigorous competition for leading players.
There’s no question that the market’s competitive landscape elevated with the introduction of Avant Money and some smaller contenders in the mortgage sector. This increased competition has resulted in new mortgage borrowers in Ireland now having rates more competitive compared to the EU average, which wasn’t previously the case.
Increased competition for deposits is also welcome, as savings rates in Ireland continue to be relatively low. While the dominant Irish banks already possess substantial deposit books, their reaction to a new market participant might not be immediate. The influence of Bankinter’s move will be determined by the number of customers they manage to persuade into switching accounts from the central banks.
In a November 2022 banking review, the Department of Finance highlighted the lack of competition in the banking sector. While it may not be unusual to see three or four major players, Ireland has fewer banking institutions than many other countries of similar size. The review predicted that competition from new digital entrants aiming to capture segments of the market, without incurring the expense of establishing a physical presence, would intensify. However, the review also stated that the sector would continue to be fragmented, with no new entity likely to establish a significant physical presence or offer full banking services.
The initiative from Bankinter brings hope to the competitive problems in the market, even though it’s not an immediate solution. Over the previous years, Irish banks have seen a noteworthy increase in profits, attributing to the robust economy as well as the expanding gaps between the costs of borrowing and lending. The essence of rivalry lies in diminishing this gap, simultaneously coaxing local banks to enhance their product portfolio and customer assistance, areas that consistently present room for improvement.