German lender proposes to pull Ireland out of its housing crisis

By September 6, 2017Articles
Amidst the housing disaster shaking Ireland, Sparkasse, the largest bank in Germany, has proposed to try to pull the country out of this crisis. This non-profit model planned to be established in Ireland for an estimated cost of €200M is applauded by the European Investment Bank. It would bring some level of relief, especially to hard-pressed first-time buyers in Ireland. However, it is not enjoying the same warm welcome on behalf of the Irish authorities.

Sparkasse is proposing a social non-profit model in Ireland

Sparkasse is a 200-year-old public savings German bank, issuing about half of all German mortgages at rates far below Irish mortgage rates. It supports a municipality-owned non-profit model, targeting the middle-class population as well as Small and Medium Enterprises (SMEs). Sparkasse has hundreds of branches in Germany and over 300,000 employees. Each branch is partly owned by the relevant local authority. As such, each regional bank operates in its own area. All branches are nonetheless grouped under the same umbrella providing IT and banking services support.

Proponents of this project in Ireland strongly believe that the Sparkasse model will serve as an ideal lender, positioned rightly and filling the gap between the two major commercial banks in the country and unstable credit unions. The German lender has also proposed the Irish League of Credit Unions to avail of the main shared service system once established.

Midlands has been earmarked by the German bank as an ideal region to launch the project. That would cost between €15M to €20M

Irish authorities seem unfavourable to this proposal

The authorities in Ireland are however not viewing this proposal as favourable. Every proposal made by Sparkasse to the Departments of Finance and Rural Affairs to invite the latter to have a better understanding of its operating system has been reportedly turned down. The public savings German bank planned to establish 10 branches in Ireland according to the same model operational in Germany. However, without the commitment of the Irish government, Sparkasse will equally not receive the support of the European Investment Bank. The latter agreed to offer financial support only if the project receives political backing in Ireland.

Certain local departments are willing to go ahead

Sparkasse is considering the position adopted by the Irish authorities as a strategy to slow its ability to form part of the Irish market. The reason put forward by the German bank is that the Department of Finance has an interest in protecting the shareholdings of Exchequer in AIB and in the Bank of Ireland. Despite not presently receiving the national support as needed, Sparkasse is favourably viewed by certain local regions such as Fingal. This leaves the bank optimistic for a “sustainable banking model” in the country.

On the other hand, the Departments of Finance and Rural Affairs claim that the “German model is being investigated for the development of local public banks”. Both departments should soon release a report with findings and conclusions.

This slow reactivity on behalf of the Irish authorities is not so different from that of the Greek authorities. Approached by the German government to establish a similar model in Greece, Sparkasse is still struggling with the authorities there.

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