There is going to be a “huge evolution – if not revolution – of banking” as more entities go down the digital route, European Commissioner for Financial Stability, Financial Services and the Capital Markets Union Mairead McGuinness has said.

This is a change that has been accelerated by the Covid-19 pandemic, she added.

The commissioner was the guest speaker at an online Irish Farmers’ Association (IFA) meeting last Friday (March 12), with a number of queries including interest rates, distressed loans and vulture funds discussed.

Asked by a number of IFA members including business chair Rose Mary McDonagh about the interest rates of Irish banks and concerns raised around the lack of competition in this area, the commissioner said:

“I don’t set interest rates here but the banking structure in Ireland is the result of the crisis that we went through some years ago – and we’re still living through it.

‘Nationalised banking systems’

“I know, when it comes to mortgages, the past sets the capital requirements of banks for today and the future. And that impacts then on interest rates.

“But it is an issue that comes up all the time, whether it’s farming finance or indeed mortgage interest rates.

“We don’t have a banking union insofar as borrowing across border really doesn’t happen; we’ve very nationalised banking systems.

There is going to be a huge evolution if not revolution of banking, because already the whole digitalisation because of Covid-19 has fast-forwarded a number of these issues, including ones in Ireland in relation to for example Ulster Bank and Bank of Ireland and those recent decisions.

“And there is an issue around banking broadly across Europe that will have to be dealt with. So, I’m aware of these points and I take note of your comments in relation to them.”

Distressed loans

Turning to the issue of distressed loans and vulture funds, raised by IFA’s Nigel Reneghan, the commissioner highlighted that a non-performing loans strategy was launched back in December.

“The first thing we have to do is protect borrowers, and not allow them to be disabused by a system that wants to get its money back quickly. And that’s something that we need to be careful of as we look to the future.

“There will be legacy debt and there could be additional debt on SMEs [small and medium-sized enterprises] because of the Covid crisis, so I’m very attuned to that issue and I do think that we need to make sure that borrowers have a chance to restructure.

The message I get from banks as I make these points to them is that if a borrower engages on time, they will and they can restructure, and very often very successfully – so I would urge whatever meetings you have around this topic, to urge people to engage early so that a problem today doesn’t become insurmountable tomorrow, because that’s where the real issues arise.

“I’ve dealt with people when I was in politics who have had a hard hand played to them by vulture funds and I think it is unacceptable.

“I think ethically it is unacceptable and I therefore will bear this in mind in the role that I carry out here in the commission,” the commissioner concluded.