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Goodbody examine new Goverment impact on banking and insurance sectors

Written by Robert McHugh, on 16th Jun 2020. Posted in Financial

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The incoming government (subject to party votes) published its “Programme for Government” (PFG) yesterday. In relation to the Banking sector, the PFG specifically states that the parties "do not believe there is a long-term case for the State to remain as a shareholder in the Irish banking sector. However, we should not sell our current holdings until such a time as we are likely to recoup a significant portion, if not all, of the State’s investment." 

In the July recovery plan, it intends to introduce measures to help Irish companies in accessing credit and capital and this may include the consideration of an enhanced credit guarantee scheme. There will be an SME Growth Taskforce to design a growth plan for the long-term strategic plan for the sector.
 
It will also look at plans to manage higher levels of corporate & SME debt in conjunction with Central Bank plus it will also look to enhance the mandate of the Strategic Banking Corporation of Ireland. Goodbody Stockbrokers say there is a rather nebulous statement that it will “support measures to ensure the smooth transition of ECB monetary policy for the benefits of consumer and the real economy” which Goodbody say can only mean some sort of vigilance on pricing. 

Elsewhere, specifically, on mortgages, it will look to work with the banks and CBI to increase the availability of long term fixed rate mortgages and also assess if state-backed mortgages for first time buyers should be introduced to support affordable home ownership. The plan also looks to see a wider role for
credit unions in the community. Goodbody say there is also a general tilt to more climate-related financing and funding and smart finance and it commits to introduce a Senior Executive Accountability Regime.
 
In relation to the Insurance sector, there is a full section on insurance reform and reiteration that it will remain a priority for the incoming government, with a focus on motor, public liability and employer liability insurance. It plans to establish a cabinet sub-committee to deal urgently with insurance reform. It will aims to look to work with customers on business interruption insurance, travel insurance and rebates for motor. It wants to enhance and
reform the role of the PIAB and regulate claims management companies and to consider the need for a constitutional amendment to enable the Oireachtas to set down guidelines on award levels. 

In relation to fraud, it will look to expand Garda powers, increase penalties for fraudulent claims, ensure they are forwarded to the DPP (Director of Public Prosecutions) and place perjury on a statutory footing.
 
Elsewhere, it will look to give the CCPC power to deter anti-competitive behaviours and will work to remove dual pricing from the market plus create an office within government to encourage greater competition. 

According to Goodbody, "There was very little in the banking sector commentary that surprised us, with the focus on supporting SMEs to drive the post-Covid-19 recovery. The specific comment in relation to the bank stakes is hardly surprising, though current valuations are likely to see it hold onto those stakes for a good number of years, a point acknowledged by the Minister for Finance. Maybe the reference to working to deliver more longer-term mortgages and transfer benefits of ECB monetary policy will strike a chord in relation to a desire to keeping mortgage pricing keen."

They added, "On the insurance sector, it is clear that reform remains on the agenda, we note the new cabinet sub-committee, the need for the Oireachtas to set down guidelines on awards and increased penalties for fraudulent claims. Progress on insurance reform has been stalling, but the new government may bring some renewed vigour to this issue, including encouraging more competition.
 
Source: www.businessworld.ie 

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