3 A need for more competition in the
banking sector?
Competition
and Markets Authority findings
33. When considering whether extra competition in
the banking sector might be beneficial to Northern Ireland, it
could, perhaps, be argued that additional competition would merely
just divide up the market place in a different manner. Any new
player would have to have the capability of establishing a branch
network similar to Northern Ireland's current "big four"
or major GB banks with a presence in Northern Ireland, such as
Santander, HSBC or Barclays. Indeed, more banks could lead to
Northern Ireland becoming "over banked", with an ever
increasing number of banks scrambling for a slice of a finite
market, ultimately leading to some banks simply not being viable
in Northern Ireland.
34. However, the argument for greater competition
was put strongly in two reports released by the Competition and
Markets Authority (CMA) in July 2014, following a joint project
between the CMA and the Financial Conduct Authority (FCA) which
concluded, inter alia, that "barriers to entry and
expansion for newer and smaller banks remain significant and the
markets remain concentrated, particularly in Scotland and Northern
Ireland".[30]
35. In its report Banking services to small and
medium-sized businesses,[31]
the CMA states that in Northern Ireland, there are two large and
two mid-sized market participants. In 2012, Danske Bank and Ulster
Bank together accounted for 63 per cent of the liquidity management
services (i.e. business current accounts (BCAs) and overdrafts)
market, whilst First Trust and Bank of Ireland had market shares
of 14 per cent and 13 per cent, respectively.
36. The Herfindahl-Hirschman Index (HHI) is a measure
of market concentration taking account of the differences in the
sizes of market participants, as well as their number. The CMA
regards any market with an HHI exceeding 1,000 as concentrated,
whilst those exceeding 2,000 are regarded as highly concentrated.
The HHI for the Northern Ireland market in 2012 was 2,454, which
was a slight decrease in the market concentration level from 2,646
in 1999, but was still indicative of a highly concentrated market.
CMA's evidence showed that the market shares of the major banks
in Northern Ireland, despite some limited fluctuations, have remained
relatively stable over the past eight years.
37. For business loans, the four largest providers
had a market share of some 90 per cent with Danske, Ulster Bank
and First Trust each having a market share of over 23 per cent.
38. The CMA also drew attention to the Business Banking
Insight website which showed sole trader BCA satisfaction scores
for the four largest banks in Northern Ireland as: Danske Bank
70 per cent; Bank of Ireland 60 per cent; Ulster Bank 56 per cent;
and First Trust 41 per cent. This compared with a score of 77
per cent for Santander.
39. Despite the relatively low customer satisfaction
scores, the CMA noted that the banks with the highest market shares
had barely lost market share over time. This was not what might
be expected in a competitive market, and supported the CMA findings
about the "stickiness" of customers, whereby they did
not change banks for various reasons, the most common of which
was a perception that "all banks are the same". In its
report Personal current accounts Market study update,[32]
the CMA also found that personal account customers were similarly
"sticky" when it came to changing banks.
Equity finance
40. There may, however, be opportunities for specialist
finance operators to provide support through their current GB
structure. Equity finance, such as raising capital through the
sale of shares in an enterprise, might be one area where a more
specialist approach would be helpful in aiding economic growth
although, as Kate Barker, the Chair of the Economic Advisory Group,
told us:
… of course, banking is not the only source
of finance; there is very clear evidence that equity finance is
more difficult to get hold of in Northern Ireland, but also that
firms are sometimes more reluctant to draw it down.[33]
The Government's view
41. In its memorandum, HM Government stated that:
The Government wants to see greater competition
in the banking sector, with more banks challenging the large incumbents.
If communities or entrepreneurs want to set up a bank, either
to serve their local community or to compete nationally, and can
do this responsibly, Government or regulators should not be an
obstacle to this.[34]
42. When the Financial Secretary gave evidence, he
referred to Northern Ireland's top five banks (the "big four"
plus Santander) and said that "it looks like a bank sector
that has a good degree of competition", but thought it could
benefit from more.[35]
43. We are concerned
about an over-concentration in the NI banking market; whilst we
would welcome any new entrants to the market, we consider the
way forward is for existing banks to improve their services to
their customers without, however, a return to previous aggressive
lending practices.
30 "Personal current accounts and small business banking not working well for customers",
Competition and Markets Authority press release, 18 July 2014 Back
31
Competition and Markets Authority, 'Banking services to small and medium-sized businesses',
July 2014 Back
32
Competition and Markets Authority, 'Personal current accounts: Market study update',
18 July 2014 Back
33
Q362 Back
34
HM Government (BNI0027) Back
35
Q858 Back
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