Ireland's new savings scheme may have 'modest' impact on banks, analysts say

Ireland's upcoming tax-efficient personal savings and investment accounts (SIAs) are unlikely to significantly disrupt banks' income, according to an analysis by Goodbody Stockbrokers. While the Banking and Payments Federation Ireland (BPFI) estimates SIAs could attract €7 billion in the first year and €20-€30 billion over time, Goodbody suggests the impact on banks' overall income will be modest.

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While initial market reactions are likely to focus on the risk of deposit outflows and the associated impact on funding costs and margins, we believe this framing is incomplete and risks overlooking the more important structural implications.

Denis McGoldrick, an analyst at Goodbody, explained that the framing of potential deposit outflows overlooks more important structural implications. SIAs present an opportunity for banks to maintain customer relationships by channeling funds into investment products. Although this may reduce net interest income, it could simultaneously boost revenues from fees and commissions.

Several Irish banks have already been positioning themselves for increased demand in investment products. Bank of Ireland and AIB have acquired firms like Davy and Goodbody, respectively, while AIB also re-entered the life and pensions business. PTSB's potential acquirer, Bawag, has also signaled interest in developing investment services.

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The SIA introduces a new dimension of competition centred on the ownership of customer relationships and the distribution of financial products.

However, banks will face competition from digital platforms and neobanks. McGoldrick emphasized that success will hinge on retaining customers within their ecosystems and leveraging their own platforms. "Banks that are able to retain customers within their ecosystems and capture SIA flows through their own platforms are likely to mitigate the impact on profitability and potentially benefit from an expanded fee base," he noted. Banks failing to adapt risk losing not only deposit volumes but also the broader economic value of customer relationships.

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Banks that are able to retain customers within their ecosystems and capture SIA flows through their own platforms are likely to mitigate the impact on profitability and potentially benefit from an expanded fee base.