Blog – David McCarthy – Galway Talks, 07/11/2013

galway-bayfmIssue:    Customers hit as 2 more Banks leave the Irish Market

Comment:  There was bad news for bank customers in the last few weeks when Danske Bank and RaboBank announced the closure of their Irish operations. Both banks purchased Irish operations (ACC – RaboBank / NIB – Danske Bank) some years ago and have accounted ‘horrendous’ problems with their loan book.  It is not a surprising move, considering that both institutions have closed a considerable number of their branches. 

For existing customers, they will have to transfer their business to alternative institutions, depending on the type of products that they hold.  The implications for competition and ultimately increased cost for customers is obvious.

Once again, the customer will end up paying for the uncompetitive structure of Irish Banking.

Issue:  AIB agrees arrangement with Independent Group to help distressed borrowers.

Comment:  The Irish MortgageHolders Organization (IMHO) announced that they have reached an agreement with AIB to assist residential mortgageholders, who are in difficulty with the bank.  This service is free to customers and will be funded by AIB. 

I firmly believe that these AIB customers will use the service, as they will feel more comfortable dealing with an independent organization who will take their interest into account.

It remains to be seen whether other banks will follow a similar pattern in the future.

Issue:  360,000 customers now using moneylenders.

Comment: The Central Bank, in a recent survey, announced that 360,000 customers are dealing with legal moneylenders.  This is an increase of 20% since the last survey in 2007.  Legal moneylenders are companies who are licensed by the Central Bank and charge anywhere from 23% to over 200%.  Typically the loans are for small amounts and over short periods.  However there is always the worry that customers will find themselves in a “debt trap” i.e. rolling over loans with these companies.

We do not know how many people deal with illegal moneylenders, but it is safe to assume that it is substantial.  This is a shocking situation for these people to find themselves in and once again confirms the need for some institution to provide personal finance to customers in difficulty.