Introduction

Corporate banking and treasury services are crucial for companies, yet Ireland’s market appears to lack independent advisory services. Banks often fill dual roles as advisors and providers, potentially creating conflicts of interest. This can lead to suboptimal outcomes for corporate clients.

A healthcare analogy illustrates the issue: when patients visit a doctor, they receive an unbiased assessment and prescription, which is then filled by a separate pharmacist. This separation ensures patients receive the best possible treatment without any potential conflicts of interest. In contrast, corporate banking in Ireland often lacks this separation, with banks providing both diagnosis and treatment.

Ireland’s banking landscape is dominated by two major ‘pillar’ banks – Allied Irish Banks and Bank of Ireland. This limited competition, combined with foreign banks focusing on multinational corporations, leaves larger Irish companies with restricted options. This can result in several issues, including:

• Excessive corporate borrowing and reinvestment with the same banks, potentially leading to inefficient financial management.
• Over-reliance on long-term funding and unnecessary covenants, limiting corporate flexibility.
• High interest margins despite excellent collateral and corporate performance, resulting in increased costs for companies.
• Inadequate use of options and overpriced hedging costs, exposing companies to unnecessary financial risks.
• Low returns on substantial surpluses, potentially impacting corporate profitability.

The absence of independent advice and benchmarks can lead to significant cost economies being overlooked, commonly equating to around 0.2% annually of corporate turnover. For larger companies, this can translate to substantial savings.

Why Independent Banking Advisory Services are Lacking

Three possible explanations are offered for this gap:

1. Banks may assume corporate clients have in-house expertise to navigate banking services without guidance, potentially underestimating the complexity of financial products.
2. Opportunity costs and revenues may be obscured from view, despite CFOs being skilled in measuring more visible costs and revenues. This lack of transparency can hinder informed decision-making.
3. Major accounting houses may feel compromised in their commitments to their banking clients, limiting their ability to provide independent advisory services.

To improve the corporate banking landscape, increased independent advisory services can provide valuable expertise and benchmarks, helping larger companies optimise their banking and treasury arrangements. By bridging this gap, companies can potentially unlock significant cost savings and improve their financial performance.