Those of us involved in the Irish banking and finance sector during the past decade have witnessed truly historic events, writes Peter O’Brien.
From 2004-07, we saw a dramatic boom in the banking industry. Then, from 2007, we witnessed one of the biggest banking sector collapses the world has ever seen.
These dramatic events called for unprecedented policy responses, including the government’s 2008 bank guarantee, bank recapitalisation, nationalisation and, ultimately, the EU-IMF bailout.
These were not merely once in a lifetime events, but were once in a century events. But now, finally we can refer to the banking crisis in the past tense.
After these turbulent years, in 2014, we can confidently say that the Irish banking crisis is over. Ireland has exited the EU-IMF bailout and all our economic indicators are pointing in the right direction. As the Irish property market steadily improves, so too does the banking sector’s confidence. We are now beginning a positive new chapter for the Irish banking sector. Deutsche Bank’s announcement of 700 new jobs shows that growth is already underway and underlines the fact that Dublin is now a major global financial services hub.
International admiration for Ireland’s stoic and effective response to the crisis has been effusive. Similarly, the broader international reaction to Ireland’s return to the markets has been one of admiration. Even those most unsentimental of organisations, the ratings agencies, all now re-affirm Ireland’s fundamental credibility. When Moody’s recently upgraded Irish sovereign debt in line with the other ratings agencies with a ‘positive outlook’, it cited an acceleration in Irish economic growth ‘which indicates an increased likelihood of securing the sustained long-term growth needed to achieve a turnaround in Ireland’s public finances’.
Deutsche Bank’s announcement of 700 new jobs shows that growth is already underway.”
It also noted that the Irish Government had ‘regularly outperformed quantitative fiscal goals, which helped it regain and retain market confidence’, and that Irish bond yields had proven ‘impervious’ to international shocks.
Just a couple of years ago, Irish banking lawyers were grappling with issues such as sovereign risk and the potential consequences of euro default. These concerns have been replaced with a new-found sense of confidence. In terms of future trends, I see a return to equilibrium in the ratios of lending to re-financing by Irish banks, a continuing maturation of NAMA in its role and an increase in market entrants seizing opportunities, especially in loan book acquisitions. As with any country, Ireland’s international reputation is crucial to its ability to do business globally. With that robust shape, we are now seeing international property investment funds invest in the Irish property market. NAMA has proven itself well able to gain solid returns, while actively enhancing market growth and stability. Ireland’s robust defense of its competitive tax regime, as well as increased domestic competitiveness means that Ireland is well placed to grow as an international financial services hub. Ireland’s globally leading asset finance sector also continues to thrive.
Banking is now becoming more international in nature, particularly as regulation becomes increasingly centralised at an EU level. Many Irish banks already have very substantial overseas operations and the internationalisation of the banking industry is set to continue.
Recent Irish legislation, The Central Bank (Supervision and Enforcement) Act 2013, included an intriguing provision allowing credit institutions operating outside the EU/EEA to operate branches in Ireland. Such credit institutions will now be able to apply to the Central Bank for a ‘bank licence’. Until now, it had been the policy of the Central Bank not to accept such applications. This change will facilitate the further development of internationally-traded financial services.
Now that the crisis has passed, and new opportunities for expansion are on the horizon, there is increasing talk of the state divesting some of the shares it took in major Irish banks during the crisis. As these banks return to profitability in a positive macroeconomic environment, the appetite for such shares could be significant. Simultaneously, we are seeing significant international interest in Irish property, bonds and shares while foreign direct investments in the country achieves record levels.
Forbes magazine recently voted Ireland the best country in the world in which to do business by measuring 11 different factors such as investor protection, tax burden and red tape and found that Ireland was the only one to rank in the top 15% in each category. Forbes noted that Ireland’s well-educated, flexible and English-speaking workforce and accommodating tax system were the main draws for international investors.
What all this points to is that not only is the financial crisis over, but that a period of remarkably strong growth is on the horizon for Ireland, and consequently for its banking sector.
Peter O’Brien, partner, Banking and Financial Services Department at Matheson.