Irish Financial Review

Bank branch closures set to increase

AIB has informed staff that it will close branches and force customers to complete transactions through An Post.

AIB’s decision will see some of its 270 branches closing while a decision on EBS remains unknown.

Internet banking to replace branch banking

The AIB announcement follows a similar one from NIB a week earlier where it publicized its decision to close the majority of its branch network through Ireland.

Banks are increasingly moving towards a ‘minimal contact’ strategy and embracing technology as the primary means of reducing costs and increasing profits.

Banks have also begun to introduce a full range of fees and charges for a wide range of services and this trend is likely to continue for some time until they have optimized these revenue generation channels.

Cost and convenience will become the central pillars in the ongoing bank restructuring drive nationally. Services will cost more and there will be less convenient banking for customers who rely on the traditional branch network.

New technology is being increasingly pushed as the new bank branch and those who prefer more personal contact, a visit to the local post office will simply replace a visit to the branch.

More families have less to spend

The Irish League of Credit Unions (ILCU) has today announced the launch of their second 2012 ‘What’s Left’ tracker. Carrying on from the 2011 series, the 2012 trackers publish how much disposable income Irish people have left, where they are spending their money and the financial hardships they are facing.

Families have less money at the end of the month

Less disposable income for Irish families

Disposable Income Decreases

1,820,000 left with €100 or less each month after essential bills are paid. Disposable income in Ireland has dropped in the past three months since the April 2012 tracker was recorded, with 69% of people having less than they had 12 months ago (2011).

Sentiment

Consumer sentiment has weakened. 87% now worry about how they will cope if unforeseen expenses arise (increase from April figures of 84%). Many also show greater concerns over their ability to continue coping financially if further changes are made to social welfare or income tax (increase to 81% in June from December figures of 71% and April figure of 73%). Additionally 61% (vs. December 2011 59% and April 57%) agreed that they are currently living to work as opposed to working to live.

Bank Charges

Half of bank account holders (50%) are unaware of what their bank charges to operate their current account. In addition, 54% of current account holders have no idea what they pay would pay in charges if their account is overdrawn. Of those that are aware of bank charges, the majority of (41%) try to maintain a minimum balance on their account to avoid bank fees while a further 13% reduce or limit transactions to meet their banks requirements. 13% would increase transactions to meet bank requirements and a further 15% have switched to another bank for lower banking charges.

 

Negative Income and Reliance on Credit Cards

62% of the population have some form of loan exposure. 39% of Irish people are exposed to credit card debt. 25% of those with a credit card depend on it to make ends meet each month. 28% of those with credit cards miss payments. 34% only make the minimum payment on their card each month. The average amount owed by Irish consumers on their credit card is €1,100. Worryingly only 54% are aware of the interest on their credit card, meaning 46% do not know their credit card interest rate.

 

Essential Bills

Mortgage and rent continue to be the most expensive bills for the majority of Irish adults (72%). Groceries remain in second place (57%). Utility bills remain in third position (54%). Transport and car related costs retain their position in fourth place with loans and repayments moving up the list into fifth place (increase to 27% in June from 21% in April).

Rising utility costs (gas and electricity) had increased the financial pressure on families, with all utility providers announcing various increases. 40% of consumers have had to borrow to pay their household bills in the past 12 months. Of this group, the largest proportion rely on financial help from family and friends, 30% use the credit union 10% rely on their bank and 10% on moneylenders.

 

Delayed Bill Payments

47% of consumers struggle to pay all of their bills on time. This figure has remained the same since the April 2012 tracker was recorded. TV license (17%), TV/ telecoms (8%), bin charges (7%), and electricity (7%) are the bills most likely to be put off by consumers. 44% of those who cannot pay their bills on time are very stressed and worried.

Work Related Expenses

Child care comes in as the greatest work related expense at €520 per month on average (of those with children), this is followed by car fuel (€145) per month, daily lunches (€110) per month and public transport (€77) per month.

Three Central Banks Act to Stimulate Economies

Major Central Banks Act to Stimulate More Borrowing and Lending

Three of the world’s major central banks announced interest rate policy changes in the space of an hour yesterday. The ECB cut its benchmark interest rate to 0.75 percent, the lowest level in its 14-year history. China’s central bank unexpectedly cut regulated bank lending rates for the second time in four weeks. And the Bank of England said it would expand its holdings of government bonds by about 15 percent.

Interest rates fall to record low

The actions once again cast central bankers in the role of primary responders to the global economic problems, aiming at the same basic goal that they have tried to hit repeatedly over the last six years: encouraging people and businesses to borrow and spend and take greater risks with their investments. The ECB also took action to try discourage commercial banks from hoarding cash and force them to lend again as a means of returning to profitability. This is recognition that a large problem with much of the monetary policies of the past can be thwarted by low levels of lending by commercial banks.

The eurozone and the UK are mired in economic recession and the United States is faring little better. Just last week, the city of Stockton in California filed for Bankruptcy protection. It is one of several US cities to have done so. And as the US faces another economic slowdown, policy makers have not yet succeeded in restoring public confidence that better days are coming.

The latest round of modest monetary measures is unlikely to result in an economic turnaround, especially if some domestic and retail banks fail to pass on the full value of interest rate cuts to their customers. To make matters worse, some of the central banks are fast running out of easy options on the monetary policy front.

Throughout history, central banks have often returned to tried and tested means of turning economies around. Printing money and quantitative easing have been some of the tools they have used as peacetime measures. The election of President Hollande in France happened at an important juncture in the ongoing sovereign debt debate in Europe. Perhaps it will be pivotal?

But back to the present. When three central banks begin singing from the same hymn sheet, this is cause for concern. Here in Ireland, surely the needs of individual banks must give way to the greater needs of society. Surely, passing on those rate cuts is the right thing to do. Additionally, increases in lending are vital, both here in Ireland and more broadly, across Europe. After all, central bank activity will only have limited success if local banks refuse to play ball.

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