New banking policies put forward as part of negotiations to form a new government signal a shift towards the state taking a more active role in the sector, analysts said today.
The state took control of most of the country's banks after a 2008 crash triggered a bailout and the outgoing government had consistently stated that it did not wish to remain a long term shareholder in the sector.
However the draft programme for government negotiated ahead of the Dáil vote which re-elected Enda Kenny as Taoiseach today, stipulates that the state will not sell more than 25% in any Irish bank before 2019.
"There seems to be a shift away from running the banks on an arm's length basis and that is potentially troublesome for a private investor in a bank," Goodbody chief economist Dermot O'Leary said.
"The goal of using the banks shareholding to effectively benefit the taxpayer goes against the principle of trying to maximise the value for the taxpayer. Investors looking at that may be somewhat spooked investing in a bank," he added.
Among the other measures proposed, the government will put further pressure on banks to cut the cost of mortgages for their customers with the document stating that "it is not ethically acceptable for Irish banks to charge excessive rates."
Investec banking analyst John Cronin said he believed the implications of the measures would be that banks pre-emptively cut rates, which would reduce profit margins, will be pushed into being more forgiving on borrowers in default and that there will be no sales of the state's shareholdings this year.
However he cautioned that some of the "radical proposals" were unlikely to materialise.
"It is important not to overreact," Cronin wrote in a note. "Especially in the context of a government that is unlikely to survive for a long period in our view and we would see some of these measures as aspirational or idealistic rather than changes that will actually be implemented."
Shares in the banks were lower on the Dublin Stock Exchange today.
