PRESENTATION TO OIREACHTAS
COMMITTEE ON FINANCE, PUBLIC
EXPENDITURE & REFORM
ON THE ISSUE OF
BANK CHARGES FOR SMEs
17th April 2013.
ISME is the independent voice of Small & Medium business in Ireland, representing in excess of 8,750 members
across all sectors. The Association is owned and run by owner managers and is independent of big business,
government and unions; ISME is the TRUE voice of the Irish SME. www.isme.ie
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Thank you Chairman for your kind invitation to speak to you about Bank Charges and their effect on
SMEs.
I will not load on statistics or comparisons as I am sure that the representatives of the Central Bank are
more than capable of covering those areas.
I will not mention the long and sad history of the banks in the Irish economy;
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The Collapse of Insurance Corporation of Ireland in 1985. Losses of over £200 million
DIRT €90M Settlement with Revenue, largest in State. Ansbacher, et al.
July 2004. IFSRA issue a report outlining that AIB had overcharged 80,000 plus customers. FX
overcharging AIB said €14million ended up at €50 million. (this is just an example of the multitude
of ‘errors’ occurring in our rescued banks.)
October 2004. The revelations contained in a study by Wall Street Financiers that Irish banks
are making nearly three times as much profit per customer as their European counterparts, and
in the process are ripping customers off. The study found that AIB and Bank of Ireland earn the
most profit per customer of Europe's leading banks. The average profit per customer in AIB and
Bank of Ireland is €341 a year, nearly three times the European average of €123.
September 2005. Competition Authority reports outlines that SMEs suffer disproportionately in
comparison to big business when it comes to lending rates and that barriers to entry and
switching costs further inhibit competition.
September 2008. Bank leaders meet Minister for Finance and tell blatant lies about projected
required level of bank recapitalisation to achieve a blanket guarantee.
2010. The lies by the banks about the performing loans sent to NAMA, which proved to be
completely overestimated. Frank Daly & CEO of NAMA.
I will mention however;
In 2001there was a charge by the UK Competition Commission of Cartel like practices by certain Irish
banks and their subsidiaries. The UK Commission concluded that a complex Monopoly situation existed
in their clearing banks and identified AIB and Bank of Ireland as participating in restriction and distortion
of price competition to SMEs’. The study identified that SMEs suffer disproportionately in comparison to
big business when it comes to lending rates and that barriers to entry and switching costs further inhibit
competition.
This was further confirmed in 2003. Mark Duffy, CEO of Bank of Scotland is on record as outlining
that a cartel was in operation in Ireland and that Irish Banks were overcharging their customers and not
providing a competitive service.
I am here today to warn you, as if you needed warning, seeing that our minister for Finance has said
that “you cannot believe what a banker tells you” -- of the perfidious actions of our banks.
I am here today to inform you of the dire straits in which owners of SME find themselves due to the
economic downturn, brought about, partly by the same banks.
I am here today to plead with you to ensure that fair play is guaranteed to SMEs (in bank charges) in the
SMEs struggle to get this economy back on its feet.
And I ask you, do you feel that, in the current climate, increases in charges of 250% are or can be
justified?
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The SME banking market is highly concentrated. The actual and physical infrastructure of Irish banking
is lorded over by the two main clearing banks, which account for 80% of SME lending and including
Ulster Bank it rises to 96%. Basic economics would indicate that where there is more competition in
banking, margins and profits tend to be lower, providing better value for customers.
Where the market is highly concentrated it is recognised that banks will easily recognise that it is not in
any of their interests to compete vigorously.
Banks make their money in two ways; Interest Margins and Service Charges.
To counteract the effect of a general drop in interest rates and margins (albeit not for SMEs), banks
have introduced a range of charges for other services that were previously cross-subsidised by lending
margins.
The rescued banks are scurrying around looking to see where they can increase income. Anyone going
into a bank to renegotiate their borrowings or have an overdraft reviewed is likely to have their interest
rate increased -- or higher charges on their account or both.
Loan arrangement fees will also be re-introduced. Now with the recent branch closures in AIB and
National Irish Bank, the stage has been reached when there are cost penalties when you have to put a
foot inside the door of your bank.
Bank charges in Ireland are regulated in accordance with the provisions of the Consumer Credit Act,
1995. The Act required that banks could not increase charges or introduce new charges without the
approval of the financial services regulator. Regulation of bank charges might, at first glance, appear to
address any potential competition problems. It is widely recognised in the economics literature that
regulation is ineffective at preventing prices being set at above the competitive level.
The increases in Bank Charges are astronomical, to put it mildly.
A spokesman with the Irish Banking Federation (IBF) said recently that banks are “returning to more
realistic pricing. Such pricing reflects the underlying costs and risks of the products and services they
provide; and meets the requirement to return to profitability” he then continued rather smarmily – “a
consideration that's all the more important for those institutions that have been recapitalised by the
government”.
Bank of Ireland Foreign Exchange are increasing, ranging from the lowest - 29% to a high of 250%.
While their increase in the cost of Electronic funds Transmission is 23%, at a time when we are doing
our best to encourage SMEs to embrace E-business. Once more the banks are sabotaging national efforts.
AIB increasing their cash handling fees by a whopping 165%. (By dropping the Primary and secondary
rates of .17 and .25 per €100 and going to Standard of .45)
This of course is not the first time that we have had blatant gouging by our banks. The last time we had
these types of increases was when the Euro came into being in January 1999, fixed rates were set
across the Euro currency zone. This eliminated justification for margins or spreads for intra-euro
conversions.
Consumers expected major benefits.
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Unhappily this never materialised. Instead banks ratcheted commissions up from an average £3.50 to
as high as £45. It is a matter of regret that the banks managed to pull the wool over the eyes of the
Office of the Director of Consumer Affairs who passed these increases. It took the strong intervention of
ISME to highlight the massive disparity in commissions, to which the ODCA agreed and then the banks
reduced, somewhat their charges.
But the EU Commission wasn’t impressed and suspected a price-fixing cartel in operation in Ireland and
several other member states.
Several Irish banks were raided. In July 2000, the EU Commissioner Monti sent statements of objection
to seven Irish banks, as well as to banks in six other member states. The EU Commission’s enquiries
detail in a report how Ireland’s seven principal banks, the Irish Bankers Federation and the Irish
Mortgage and savings Association, which represents building societies, operated as a Cartel in 1997
and 1998. The commission has documentary evidence of infringements of Article 81 (1) EC.
In May 2001, Ulster Bank became the first Irish bank to wilt under commission pressure and reduced its
conversion charge by a massive 56%. AIB and Bank of Ireland also cut commissions to 1.5%. In a
quid pro quo, the EU Commission dropped cartel proceedings.
Perhaps the most worrying feature of the brief history between the EU Commission and Irish banking
since the creation of the Euro has been the apparent tacit admission of guilt by banks. The retreat by
Irish banks, under the heat of EU Anti-Trust action must be a worry to anybody engaged with Irish
banking.
What would be found, I wonder, if there was a root and branch investigation of competitive practices
within Irish banking by a competent independent authority?
In conclusion, I ask a few simple questions;
Is it right that SMEs, the backbone of the economy pay for the excesses of our profligate bankers?
Is it right that at a time when there is a national campaign to encourage Electronic Banking that you
allow an increase of 23% on bank EFT charges?
Is it right to increase costs by 23%, or 33% or 97% or 150% or 250% at a time when belt tightening is
and for the private SME sector has been the order of the day?
These increased costs are set against a backdrop of branch closures, reduced branch services,
under trained staff and a ‘take it or leave it’ attitude from bank management.
ISME urges the Oireachtas Committee to call on IFSRA to rescind its decision to allow the new bank
charges and instruct the banks to revert to previous rates of charges.
It is incomprehensible and completely unfair to allow the bailed-out banks to profit from the
hardship of SMEs, with such exorbitant and penal hikes in charges. It is important that the
rescued banks become viable after bankrupting the country, however this must not be done at
the expense of the vulnerable SME sector.
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ISME members quotes.
I feel we are being penalized for handling cash. We don’t have any option but to take in this cash. Trading in
these economic times is extremely difficult, and if we are paid in cash, we are delighted because cash does
not bounce.
We have been notified of increased bank charges by XXX, across all accounts without any negotiation or
discussion. It is a “take it or leave it” situation.
I have not calculated the extra costs as yet, but they shall be substantial in terms of increased bank charges
as they will rise in this instance alone by some 33.3%
They are literally "raping" us with charges on our GBP £ account - we export in £'s and hold receipts in GBP
as we also have to make GBP payments.
We have a US$ account and very time we do a transfer from this account the charge is nuts!
My view is that customers are now an inconvenience to the bank .they would prefer you did not come in.
This means they charge me €8.00 for putting a bundle of 50 notes through the note counter!
In three words bank charges are ‘a total disgrace’. Don’t get me started (!),
My bank will no longer accept coins in the lodgement, and will not allow lodgement (into safe) after 3pm.
In my opinion, customer service levels in XXX have dropped drastically in the past 12 months
It is less customer-friendly, appearing to want to lose clients rather than gain them
Their charges (€3020 in 2012) are strangling our company, while the service is poor, and bank not very
approachable or helpful.
For the first quarter alone we have had an 18.8% increase in our bank charges (XXX). These increases have
occurred even though we do not have an overdraft or term loans and we are in credit with our account. The
management in the bank give us the same old excuse "It's Head office". Our bank charges accounted for
1.5% of our turnover last year.
I recently attended a meeting with a client with their XXX bank manager who tipped us off unofficially that
bank charges were due to be increased significantly across the board and not to ring him when the official
letter arrived as there would be nothing he could do.
One of our biggest issues regarding charges with the bank is the cost of online transfers. There has been a
big push over the years for electronic transfer of funds but the charges have remained very high. For
example: It is much cheaper for us to make a payment in the United Kingdom and Northern Ireland by cheque
than by Electronic transfer. For example a transfer of £2,835 cost us £15.16 two weeks ago whereas to send
a cheque the costs are quite low.
Fees on bank transfers is very high and many of our transfers are less than 10,000 so they have a direct
bearing on our profitability.
This will have a serious impact on our business as we have 16 regional drivers/sales staff who lodge money
locally. This new policy will make it extremely difficult for us to reconcile daily lodgements. In addition, we will
have to allocate additional resources to this area. It appears as though XXX are pushing all of the admin
associated with handling coins back onto the customer. Surely the purpose of a bank is to accept all forms of
money?
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