After more than a decade of crashes, bailouts, nationalisation, mounting mortgage arrears, tracker scandals, lenders' departures and IT meltdowns, Ireland’s Big Three banks finally looked to be in rude health once again this year.
Bank of Ireland set the positive tone way back in February, reporting a €1.9 billion profit for 2023. It went on to add €1.1 billion to its profit pile during the first half of this year.
Not to be out-done, AIB then reported an "exceptional" €2.06 billion profit for 2023. It continued to upstage BoI with its interims, too, reporting a near €1.11 billion profit for the first six months of 2024.
Meanwhile PTSB (as it’s now officially known) saw its underlying 2023 profit jump to €166m as it benefited from the assimilation of Ulster Bank’s SME loan book. Its 2024 half-year profits were also well up at €75m.
The Big Three were buoyed by the extraordinarily high interest rates set by the European Central Bank – which helped to pad their loan margins while also lifting the burden of their tracker mortgage books.
But their performance was also aided by the strength of the Irish economy, with rising employment and wages generating higher consumer spending, and more demand for loans, credit cards and mortgages.
They wouldn’t say so publicly, but the banks were also happy to see KBC return its Irish licence and Ulster Bank continue its exit from the market. That has helped to concentrate consumers onto their business, even if it has been a negative for the consumer.
(Well, most consumers – Ulster Bank’s decision to write off most of the outstanding balances held by its remaining credit card customers was sure to have made it a net positive for some.)
The behind-the-scenes of Irish banking also moved closer to the 'good old days’ – or at least back towards normality – with the State further loosening its grip on AIB’s shareholding, while PTSB began to pay dividends once again.
But even with such a solid year behind them, bankers are sure to feel a little bit nervous about their prospects as they head into 2025.
For a start, the interest rate cushion provided by the ECB is quickly deflating.
Having peaked at 4%, its deposit rate is now an entire percentage point lower at the end of the year. And there are more cuts to come, with some predicting that rates will settle closer to 2%.
That’s still better than the era of zero rates that banks suffered through post-crisis – but it will make the remarkable profits of 2023/24 that big harder to replicate.
At the same time the competitive reprieve enjoyed by the Big Three looks to have been short-lived.
Having acted as a kind of financial add-on for many years, Revolut is now making a serious push to be a fully-fledged alternative to banks here. That includes offering credit cards, loans and competitive savings rates – with mortgages promised to be available next year.
At the same time N26 continues to grow in popularity here, Bunq has been drawing in depositors, while British digital bank Monzo is set to open a Dublin office.
That is bound to be a concern for the Big Three – which abandoned their planned Revolut rival just over a year ago.
And despite significant investment in IT infrastructure and digital, banks here continue to seem adrift in the digital space. And they continue to be dogged by technological issues – albeit less severe ones than they suffered in the past.
But it isn’t just the techbro upstarts that are encroaching on the Big Three’s turf – the humble Credit Union is fast becoming a serious competitor too.
In the year to September, credit unions affiliated with the Irish League of Credit Unions had amassed a loan book worth €560m – up more than 50% year-on-year.
The signing into law of the Credit Union Act 2023 also represents a significant moment for the sector, as it ushered in significant reforms to the way they can operate.
That includes allowing different credit unions to cooperate on the likes of mortgage and SME lending – which will likely see the growth of standardised mortgage products across a collection of unions.
Other regulatory changes could also broaden their lending power.
And as if tougher competition wasn’t enough of a challenge, banks here are also facing into a year of economic uncertainty – with doubts about the health of the euro zone and the start of Donald Trump’s second term in the White House likely to reverberate into the Irish economy.
That could impact everything from demand for new loans, all the way through to mortgage and SME arrears.
On the one hand this challenging landscape could be good news for customers.
More competition – be it from Credit Unions or Revolut - is generally a positive, as it means there is more choice. It might even force the Big Three to finally get their digital house in order, having lagged behind on that front for so long.
However banks here still carry the scars of their Celtic Tiger collapse, and have proven themselves to be incredibly risk-adverse.
So if the storm clouds are gathering – from a euro zone slowdown, Trump’s tariffs or some other unforeseen crisis – there is a fear that the Big Three’s shutters will be the first to come down.
