The 2021 Budget assumed a phasing out of the State supports from July 2021 onwards. The delay to the vaccine rollout means that an extension will be required, especially in the hospitality and tourism sectors.
However, the Government are clearly banking on getting certain sectors back up and running so that they can phase out the state supports in these sectors as quickly as possible. The longer the supports remain in place, the greater the level of national debt is required and the longer it will take to repay. This will impact on the public finances for years to come.
Thankfully we are in a low interest rate era, and there is little sign of that changing anytime soon. The Government can borrow at close to zero cost, so need to maintain the supports to the critical areas of the economy where they are most needed.
The decision of Ulster Bank and KBC to exit the Irish market is bad news for the general consumer and for the business community. Can PTSB become the third force in Irish banking? It seems unlikely. Furthermore, the Central Bank regulations and Government policy on debt enforcement is not appealing to International banks.
Billy Kelleher MEP at a recent Dungarvan and West Waterford Chamber event, sponsored by Connors and Co, highlighted the need for a greater alignment of interest rates on borrowings between Europe and Ireland. That is of course the case, but the Irish banks in general do not re-possess houses or seek other enforcement measures to the same extent as elsewhere. The Irish banks have longer mortgage lending arrears than most European counterparts, and politically that will not change anytime soon. Therefore, the disparity in interest rates looks set to continue for quite some time.
The remaining banks continue to cut costs, reduce headcount and reduce customer service levels. It is a road to nowhere. SME business owners are already looking at other sources of finance. We are noticing an increasing number of M&A deals being financed from alternative funding providers such as working capital specialist lenders and bespoke equity providers.
The pillar banks are also losing the technology race, with providers like Revolut gaining market share. The cost of keeping money on deposit has seen a flood of interest in Crypto currencies and record highs for Bitcoin. This trend will likely continue.