Published 4 July 2018
Minister for Finance and Public Expenditure and Reform, Paschal Donohoe, T.D., and the Minister for Rural and Community Development, Michael Ring, T.D., today (Wednesday) announce the publication of a report on Local Public Banking in Ireland (available here). This Report fulfils a commitment in the Programme for a Partnership Government.
A proposal for a system of local public banking in Ireland was presented by Irish Rural Link and the Savings Banks Foundation for International Cooperation (SBFIC), the international development wing of the Sparkassen group. A detailed analysis of this proposal was undertaken by Government.
A public consultation process was undertaken by the two Departments, from 2nd March to 29th March 2017, where interested parties were given the opportunity to make their views known.
The Report concludes that there is not a compelling case for the State to establish a new local public banking system. The cost to the Exchequer for the proposed new model is estimated at a minimum of €170m. The assumptions in the proposal based on costs, interest rates and loan attrition rates, appear challenging and the suggested locations in the proposed pilot in the Midlands would overlap with existing banks, credit unions and post offices. While the report concludes that there is not a compelling case for the State to establish a new local public banking system, alternative means of establishing local public banks may have the potential to bring additional competition to the financial services market and the Government is committed to examining this.
There is, of course, also no impediment to any interested parties separately pursuing the establishment of a system of local public banks in a manner that does not involve Exchequer funding. Indeed, the Government is fully supportive of increased competition in the banking sector and it encourages any potential new market entrants to engage with the Central Bank of Ireland and the Department of Finance on this matter.
The Government recognises the positives in the concept of local public banking in terms of increasing access to finance for SMEs and supporting local communities and has committed to commissioning an independent external evaluation of other possible ways in which the public banking concept could be promoted in Ireland. The Government is also committed to engaging with interested parties, such as Irish Rural Link, further on this by way of a stakeholder forum, the details of which will be announced in due course. The Government is fully committed to supporting SMEs and regional and rural development.
In relation to the findings of the Report Minister Donohoe stated, that: “Following considerable analysis and careful consideration of the proposal on local public banking, the decision has been taken not to pursue this option. However, given the positive aspects of the concept of public banking, I have decided to commission further work in this area by means of an external, independent evaluation looking at how this concept could be promoted in Ireland. The Government has already put in place a number of policy measures to support access to finance by Irish SMEs. These include the Strategic Banking Corporation of Ireland, the Supporting SMEs Online Tool, the Microenterprise Loan Fund, Local Enterprise Offices, the Credit Review Office and the Credit and Counter Guarantee Schemes. Additionally, the report highlights the positive contribution of An Post and credit unions to the Irish banking environment, especially in rural and regional areas. Supporting rural and regional development and enabling Irish SMEs to create employment and to contribute to economic growth remains an important Government priority.”
Minister Ring said: “Local public banks are well-established in many countries and provide a real alternative to banks. The Government is committed to examining the concept of local public banks being promoted in a bid to provide additional competition in the financial services market. I welcome the commitment by Minister Donohoe to commission an independent evaluation of how this could happen, as there may be alternative routes for public banking to become established in Ireland. I would like to thank all who contributed to this Report and in particular to Irish Rural Link for their ongoing efforts in promoting local public banking.”
Responding to the announcement regarding publication of the Report on local public banking, Debbie Byrne, the Managing Director of An Post (Retail) said: ‘An Post proudly delivers quality financial services to local communities through Ireland’s largest retail network with more than 1,000 offices providing local banking services in the community. An Post is expanding its range of financial services and early in 2019 will have comprehensive and competitive personal loan and credit card offerings for consumers. The company is also currently exploring a go-to-market strategy for SME loans and has been in discussion with the Strategic Banking Corporation of Ireland and other providers to explore how to satisfy the unmet demands of this sector. A strategic link with the Local Enterprise Boards will further help facilitate a broad proposition for SMEs and An Post is working with other Government agencies and departments to see how post offices can become an advice hub for local SMEs.
“Our commitment to rural Ireland is that all communities with over 500 people will have a post office; in rural areas, 95% of the population will be within 15km of at least one post office, while in urban areas, 95% of the population will be within 3km of at least one post office. We look forward to working with the Government to fulfil the obvious demand for further financial and banking services for retail customers and SMEs nationwide into the future.”
Ed Farrell, CEO of the Irish League of Credit Unions (ILCU), stated that: “The Irish League of Credit Unions welcomes this report which rightly states that ‘credit unions are seeking to play an increasing role in the Irish retail financial landscape’. The future we envisage is providing home loans for families, credit for small business/agri-sector, current accounts and micro-credit to compliment the range of savings and loans services currently offered. Our agenda is set out in our summary paper Six Strategic Steps and developed in detailed documents on investing in social housing and lending to SMEs. We look forward to working with the Government to realise a shared vision for communities locally, where local credit unions across the country are already present, strong and trusted.”
The CEO of the Credit Union Development Association (CUDA), Kevin Johnson, in response to the announcement of the publication of the Report on Local Public Banking, also said: “We believe credit unions can be at the financial heart of our indigenous economy and create a platform for rural revival, and indeed urban stimulation. With 263 credit unions and €9 billion currently available to lend, credit unions are very well positioned to deliver this service. We believe that credit unions have the lending capacity, and through the Solution Centre are developing the expertise to take an enhanced role in relation to lending to SMEs. Credit unions are already engaged, to a degree, with small businesses, however, we see them doing much more while continuing to meet the needs of individuals, their families and their communities. CUDA has taken a leadership role in advocating the changes that are essential for credit unions to deliver to local consumers and businesses. Through the Solution Centre, we have also implemented new products, processes and systems that will deliver the benefits that the advocates for public community banking are seeking.”
The full Report is available to view on the Department’s website: www.drcd.gov.ie
NOTES TO EDITORS
- The Sparkassen model is where the State, or another public body, has ownership of a bank or other financial institution, as opposed to private ownership. In Germany, local public banks are called Sparkassen. Sparkassen are only permitted to operate in specific geographic regions and their lending activities are confined to this particular area. The aim and philosophy of Sparkassen is not just profit maximisation but promoting and encouraging regional economic development and financial inclusion. An important part of this business model is also working closely and building relationships with local small and medium sized enterprises.
- There is no impediment to Irish Rural Link and SBFIC engaging with the Central Bank of Ireland, the credit union sector, An Post or any other private sector body or investor in relation to their proposal. It is open to them to progress their proposal on this basis in a manner that does not involve State funding.
- The Department of Finance is continuing to work with other Government departments to develop tailored and innovative policy initiatives that support the ongoing and evolving needs of Irish SMEs and rural economic development, such as the Agricultural CashflowSupport Loan Scheme and the Brexit Loan Scheme, announced in Budgets 2017 and 2018 respectively.
- The Department will also continue to consider whether existing or new policy measures and initiatives could better serve the needs of Irish SMEs, including rural and regional businesses, and retail customers generally. Additional developments and emerging trends, such as FinTech, will be kept under review for their potential to develop initiatives that could deliver credit in a more effective and less costly manner.
- It is important also that SMEs are aware of the range of financial and non-financial supports available from the Government and its agencies and in this context, work is being undertaken, and will continue to increase SMEs’ awareness of these supports, including for those in rural areas.