The 3 tools in a bankers box.

Banks have three tools (and no, it isn’t the CEO, Chairperson and Secretary!) in their box for getting into good health:

1. Operational efficiency: translation – fire a lot of people, close branches, reduce company benefit schemes etc
2. Reduce deposit pricing: pay the people who deposit with you less
3. Increase margins: on mortgages, SME loans, and every manner of service for which you can get away with it.

Which is why the news that AIB want to increase prices comes as no surprise. The first two parts of the plan are already under way, they are closing nearly 70 branches of which 44 just shut two weeks ago. They are getting rid of 2,500 staff members, that’s the ‘operational efficiency’ leg of the journey.

The deposit pricing is lower now than it was last year and last year was lower than the previous year, currently they’ll pay 2% or less for any account with a meaningful amount (greater than €50,000). While they market attractive rates for the regular saver (above a certain amount you’ll often go to a notional interest rate) the bulk of the deposits are now very low priced – in particular when you can get over 4% elsewhere.

Which leaves gross lending margin, the moves by AIB of late and the repurchase opportunities mean that getting to 5% (apart from being realisable and realistic because lending appetite is not price driven at present) will mean that for the size of their balance sheet that banks are going to enter a ‘goldilocks’ period, a flattened yield curve, high margins (the highest in a generation) and people willing to borrow at those higher margins.

All said, this is like ‘bankers physio’ in some respects, and these are the necessary exercises they must take, the point to note is that it is a clear cut agenda with clear cut customer implications so defend your finances appropriately!

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