Aib And Bank Of Ireland example essay topic

AIB group is Ireland's leading banking and financial services organisation. It operates principally in Ireland, Britain, the USA, Poland and Asia. The group employs over 31,000 people worldwide in more than 1,000 offices. The group has four main divisions: .

AIB BANK: This consists of the group's retail and commercial activities in the Republic of Ireland, Northern Ireland, Britian, the Channel Islands and the Isle of Man. It also includes Ark Life and other specialist business offering credit card, car finance and leasing, home mortgages and other services. More than 10,000 staff work for AIB Bank operating out of over 300 outlets... AIB Capital markets divisions comprises the Treasury and International Investment Banking and Corporate Banking activities of the group...

USA division includes Allfirst and AIB's American outlets and employs around 6,500 people... Poland division where AIB has a major shareholding in two Polish banks employing over 12,000 people and giving the bank access to one of Central Europe's largest economies. AIB is the republic's biggest bank, with record profits of almost EUR 1.4 billion for 2002. The record sum was delivered against a backdrop of worsening domestic and international economic conditions. It also came after a EUR 643 million fraud at its US subsidiary All First. According to the Consumers' Association of Ireland, the banking sector in the Republic is characterised by a lack of choice for consumers.

The association's chief executive Dermot t Jewell says AIB's massive profits are proof that none of the money generated by financial institutions is finding its way back into the pockets of customers. Clearly comfortable in a non-competitive environment, the Irish banks have also displayed an unwillingness to offer customers any choice when it comes to mortgage products. In the UK there are about 120 mortgage lenders offering 4,500 products. In the Republic there are 12 main players offering about 70 products. That means the average British lender offers 37 products while its Irish counterparts offer just six. In the past, the banks have also been slow to pass on the European Central Bank's interest rate cuts.

While many European banks pass on the cuts almost immediately, the Irish institutions have sometimes waited for a number of days before acting, although their own economists have often predicted the cuts long before they happen. However, if the ECB increases rates, the Irish banks are very quick to pass the increases on to the consumer. It is pretty obvious that that the dominance by Bank of Ireland and AIB of the Irish market for financial services is killing competition and, in the process, forcing the public to overpay for loans and other services. The Republic's two biggest banks - AIB and Bank of Ireland - control 80 per cent of all current accounts and, despite claims that this is largely a loss-making undertaking, Davy suggests they could earn more than EUR 150 million this year from these accounts. But while the banks claim they are as competitive as their European counterparts on charges and commissions, there is no doubt their comfortable position in Irish corporate life has been bolstered by the fact they pay such little tax.

Between January, 2000 and the beginning of this year, corporation tax has come down from 24 per cent to 12.5 per cent. This compares very favourably with the UK, where banks pay tax at 30 per cent. And with astute tax planning, the Irish institutions have, in the past, been able to push tax paid below 10 per cent - more than four times lower than that being paid by many bank customers on their incomes. The Consumers' Association of Ireland (CAI) said that it was opposed to the proposed merger of IT functions as between AIB and Bank of Ireland through a joint venture company. Speaking on the issue, CAI's Chairman, Mr. Michael Kilcoyne said, "Technology is one of the principle weapons of competition. The Irish banking sector is already riven with tepid competitive forces.

The proposed merger could conceivably become a softening up step in a merger between Bank of Ireland and AIB, currently being promulgated with the Department of Finance and with its Minister. If AIB and Bank of Ireland were to merge canteen facilities they would save money, so it comes as no surprise that there would be a saving in an IT Merger. But who would benefit? The main Irish banks combine to make over 2.5 bn in profit each year, most of which comes from Irish consumers.

Based on the recent Government report - Strategic Review of Irish Banking, the banks already enjoy a return on assets some three times more than large continental players such as KBC, ABN and R abo, -the very type of organisations that Irish banks fear from takeover" Irish banks already have the lowest cost expense ratio outside of Luxembourg, and charge 7% more than the EU average for credit cards. We have the second most expensive overdrafts in Europe outside of Portugal, and the second most expensive personal loans outside of Holland. Super premium profit on Irish homeloan mortgages were exposed when Bank of Scotland entered the market, forcing profit margins on homeloan mortgages to fall a whopping 80% in Autumn '99. In terms of infrastructure, our bank branch density is one-third the EU average, and the number of ATM's is 40% less than for other EU consumers. This is a disgraceful heritage. Now the main banks propose to merge their IT functions, removing competitive pressure between them on the most vital cog - providing service.

This is entirely unsatisfactory" said Mr. Kilcoyne. Allied Irish Banks have long established ebusiness channels including its internet banking service with over 55,000 customers online by year 2000. Customers are already availing of the AIB mortgage website where home loans can be organised from the comfort of the home. Share dealing on the internet is already a reality for Allfirst customers. Bank customers can even check accounts by using the screen on their mobile phones.