HBOS, the UK’s fourth largest lender, is planning to launch an assault on the Irish retail banking market to break the stranglehold of the country’s two largest banks.

The lender plans to open 46 branches over the next 14 months, which it said on Tuesday would constitute the first major new retail banking network in the country for over a century.

The rollout, under the Bank of Scotland (Ireland) banner, will take on the big two of Irish banking, Allied Irish Bank and Bank of Ireland, which according to HBOS between them have a banking relationship with 91 per cent of Irish customers.

HBOS pledged to increase opening hours at its branches to on average 50 per cent more than their Bank of Ireland or AIB equivalents, and announced the launch of a savings account offering the best rate currently available in Ireland for a savings product.

The first three new branches will open in Dublin and Limerick on Wednesday, followed by a further Dublin branch later this month.

HBOS expects that the 46 branches will allow it to serve two-thirds of Ireland’s adult population. In contrast, larger rivals AIB and Bank of Ireland operate from a network of around 190 and 265 branches respectively.

The Irish expansion follows HBOS’s purchase of the Electricity Supply Board branch network last year. The bank estimates that the purchase and rollout will cost around €160m ($193.7m) and said that the operations would be financed from resources raised in Ireland.

HBOS shares slipped 1.6 per cent in London to 960p.

James Crosby, HBOS chief executive who will step down at the end of July, said Ireland was attractive because of the continued strength of its economy, its young and growing population, its robust local savings culture, and the high margin structure of its existing industry.

He added that the incumbent banks were “perhaps rather comfortable with the status quo,” and that HBOS’s challenge was to “take on the big two, head on.”

Simon Maughan, head of European banks research at Dresdner Kleinwort Wasserstein, pointed out that a full suite of products may not be available in Ireland for another year: “We will see some people switching because of the savings rate but for multi-product switchers they may require a current account, so the impact will accelerate from 2007.”

The bank has already gleaned 6 per cent of new mortgages taken in Ireland, without a branch network, and is, according to Mr Crosby, already the country’s second largest business bank.

HBOS built its presence in the UK retail market using simple products backed up by an aggressive and clever marketing campaign, and the bank now hopes to replicate that success abroad.

“HBOS is not a radical force for a whole new concept of retail banking,” says Mr Maughan, adding that the UK banks were slow to react to HBOS’s straightforward, retail-style approach to winning customers. “I expect the Irish banks to be equally tardy in responding.”

Unlike competitors such as Royal Bank of Scotland, HSBC and Barclays, HBOS remains largely dependent on the UK market, where higher interest rates, slowing demand for mortgages and increased competition make growth difficult to achieve.

Last week incoming chief executive, 38-year-old Andy Hornby, again defended the bank’s meagre international presence, insisting that his appointment did not signal a shift in strategy at HBOS.

Outside the UK, HBOS has focused on countries with a similar banking system to its domestic market, such as Ireland and Australia, challenging incumbent banks with simple and low-cost retail products.

Mr Hornby did not rule out a move into other overseas markets, but said any such investment would have to offer a very high rate of return.

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