ECONOMIC AND SOCIAL CHANGES

Economic And Social Changes

Economic And Social Changes

Introduction

This paper focuses on retail banking; that is the personal sector and the small and medium-sized enterprises (SMEs) sector. More than eighty credit institutions offer banking services in Ireland, of which eleven have a significant involvement in retail banking by operating branch networks. Most Irish banks are publicly quoted companies. The majority of shareholders are private individuals with relatively small holdings although the bulk of the shares are held by institutional investors, including pension funds and insurance companies. An increased proportion of shares in the larger banks are owned abroad. There is a significant foreign presence in Irish banking.

The development of the International Financial Services Centre (IFSC) has increased the internationalisation of the Irish banking sector, with IFSC entities operating mainly in the wholesale sector. In terms of employment, Ireland is close to the EU average for numbers working in banking relative to population. There is a comparatively small number of bank branches and Automated Teller Machines (ATMs) per head of population relative to most other countries in Europe.The main services provided by retail banks in Ireland include the traditional intermediation functions (deposit-taking and loan provision), money transmission services through retail payments systems, and, to a growing extent, other services such as providing stockbroking facilities and life assurance products. Increased competition for savings has obliged banks to provide new products which offer higher rates of interest than traditional demand deposits.

Interest rates available to savers appear to be competitive by the standards of other euro area countries. The paucity of data, however, prevents firm conclusions being drawn on the cost of loans, especially for the SME sector.The ECB has classified the Irish banking market as one of medium concentration. However, elements of Irish banking, including retail banking, are significantly more concentrated. Irish banks are highly profitable, which partly reflects the country's strong economic performance in recent years. Cost/income ratios for Irish banks also compare very favorably with those of other countries. Increased competition for traditional bank services has led to a declining trend in net interest margins in recent years and a move towards non-interest sources of income.

Discussion

The banking sector is a major contributor to the Irish economy. In 1998, banks spent more than IR£1.8 billion [ €2.3 billion] in the economy, paying over IR£640 million [ €813 million] to the Exchequer in taxes. The sector is also one of the largest employers in the State, providing over 30,000 jobs. It is estimated that the contribution of banks to the Irish economy accounted for 3.5 per cent. of GNP in 1998.7

Without an efficient financial system - comprising banks and non-bank financial institutions and financial markets - no modern economy could prosper. The main function of a financial system is financial intermediation, i.e., facilitating the interaction between those with funds surplus to current requirements (savers) and those in need of funds (borrowers). Banks also contribute to the economy as providers of other financial services, such as money transmission and payment ...