Welcome to Banking News, the KPMG Ireland quarterly banking newsletter, which brings together useful insights and developments relevant to the banking and capital markets industry.
Economic outlook
Ireland
Headline and underlying indicators of the Irish economy both suggest that the economy will grow in a robust fashion in 2024 and 2025, according to the ESRI’s Quarterly Economic Commentary for Summer 2024. This growth is being driven by robust domestic demand and a better-than-expected international outlook. An expected increase in real income this year and in following years of approximately 3% per annum will contribute to Modified Domestic Demand growing by 2.2% in 2024 and by 2.9% in 2025. This increase in real income is underpinned by both a strong expected increase in nominal income and the continued deceleration in the rate of inflation.
Underlying growth in the economy can also be indicated by the unemployment rate, which is projected to continue to fall to 4.1% in 2024 and to 4.0% in 2025. The growing domestic economy and the low unemployment rate give rise to the issue of capacity constraints, with recent data from the Housing Commission suggesting an upward revision of housing supply targets will be needed.
Europe and UK
According to the Office of National Statistics, monthly real gross domestic product in the UK is estimated to have grown by 0.4% in May 2024 after showing no growth in April. The real gross domestic product for the three months to May 2024 grew by 0.9% compared with the three months up to February, which was driven by a growth in services output of 1.1%. The growth in the services sector in those three months was the strongest growth rate since December 2021, with professional, scientific and technical activities being the largest positive contributor to the rise in services output in this three-month period.
The June ECB staff macroeconomic projections for the euro area economy discusses how the euro area economy recovered in the first quarter of 2024 by more than expected in the March projection, boosted by net trade and rising household spending. Annual average real GDP growth projections have been revised and are now expected to be 0.9% in 2024, strengthening to 1.4% in 2025 and 1.6% in 2026. Headline inflation, measured by the Harmonised Index of Consumer Price (HICP), is projected to move broadly sideways in the near term, show some volatility over the remainder of 2024 owing to base effects and higher energy commodity prices, before moderating further to levels close to targets in the course of 2025. Overall annual average headline HICP inflation is expected to decline from 5.4% in 2023 to 2.5% in 2024, and further to 2.2% in 2025 and 1.9% in 2026.
Global
The May edition of the OECD Economic Outlook issues projections for 2025, with global GDP growth projected to be 3.2%, inflation projected to be 3.4% and the unemployment rate projected to be 5%. Inflation is falling towards targets and despite persisting pressures, inflation is falling faster than initially anticipated. Global activity is proving relatively resilient with growth remaining modest, despite the continued impact of tighter monetary conditions. The resilience seen globally was not universal, however, with weakened growth seen in Europe, and in low-income countries collectively. This weakness reflects the lingering effects of the large energy price shock back in 2022 and the slowdown in credit growth in economies with a relatively high dependence on bank-based financing.
In the most recent World Economic Outlook, the IMF discusses how the global economy is in a stickly spot with global growth broadly unchanged amid persistent service inflation. Global growth is expected to be in line with previous projections, at 3.2% in 2024 and 3.3% in 2025. Monetary policy normalisation is being complicated by service inflation holding up disinflation progress. This has led to an increase in upside risks to inflation, which among escalating trade tensions and increased policy uncertainty, raises the prospect of interest rates staying higher for longer.
Spotlight
Unlocking Financial Innovation: Strategic approaches to open banking implementation
Overview
The recently launched FPAI Open Banking paper, titled 'Unlocking Financial Innovation: Strategic Approaches to Open Banking Implementation’ (available here), was prepared by a panel of experts comprising Tony Smith (KPMG), Vincent Brennan (Industry Expert), and Michael Concannon (FPAI). It examines the opportunities presented by Open Banking, addresses implementation challenges, and reviews regulatory and industry initiatives that enable an enhanced Open Banking market.
The paper and its key themes were presented in person to the Department of Finance by its authors.
Open Banking Evolution in Ireland
The Open Banking Working Paper provides a comprehensive analysis of the transformative changes in Ireland's payments landscape since the last National Payments Plan, particularly highlighting the mandatory adoption of the SEPA Payments Scheme in 2014, the introduction of Open Banking with PSD2 in 2015, the launching of an Instant Payments scheme in 2017 and the significant shift towards electronic and cashless payments accelerated by the pandemic.
The paper emphasises the significance of open banking in empowering customers with access to their financial data and enabling them to make informed choices about their banking needs.
Strategic recommendations were provided as part of the public consultation to guide the revised National Payments Strategy for 2024 and includes the reconstitution of the FPAI Open Banking Working Group; the creation of an awareness and education campaign; a framework and accountable body for monitoring and reporting on progress; and a national Open API and Data Strategy.
Launch event
BPFI and KPMG officially launched the report at the IFS 2025 Open Banking Strategy Event in KPMG’s Dublin office on Monday 24th June.
We were delighted to be joined by Minister of State with responsibility for Financial Services, Credit Unions and Insurance Neale Richmond, who gave a keynote address. Ian Nelson, Head of Financial Services for KPMG Ireland, gave an opening address, followed by a panel discussion moderated by Tony Smith (KPMG Payments Specialist), with panellists Susan O’Reilly (Principal Officer, Department of Finance), Leigh-Anne Cotter (VP, TrueLayer), Mikela Trigilio (Payments Policy and Oversight Lead, Central Bank of Ireland) and Gillian Byrne (Head of Payments, BPFI).
KPMG activity
KPMG recently published Banking and Capital Markets thought leadership on several topics, including generative AI. Please find links to our latest articles below.
- Generative AI will help banks accelerate digital transformation
- Unleashing potential: Exploring generative AI's role in banking
- Beyond Saving: Cost optimisation for the modern bank
- Unlocking Financial Innovation: Strategic Approaches to Open Banking Implementation
- Regulatory shift in IRRBB & CSRBB
- DORA – Act now
- Navigating the landscape of regulatory changes
Central Bank of Ireland news
Pace of public spending risks an economic crisis, Central Bank warns: If Government spending increases continue at the current pace without any new tax measures to counterbalance it, ministers risk driving higher inflation, damaging Ireland’s competitiveness and long-term prospects for growth in living standards, the Central Bank of Ireland (CBI) has warned. The message from the Central Bank’s economists in their second regular quarterly bulletin of this year, echo previous warnings from the Irish Fiscal Advisory Council. This message was further hammered home in the pre-budget letter sent by the Central Bank governor, Gabriel Makhlouf, to Finance Minister Jack Chambers in early July. The governor urged the government to stick its own rule limiting the overall annual increase in spending to 5%.
Policy actions need to be taken to sustainably address the economy’s capacity constraints: The Central Bank published its second Quarterly Bulletin of 2024 on 18 June 2024. On the launch of the Quarterly Bulletin, Robert Kelly, Director of Economics and Statistics said: “The Irish economy is expected to continue to grow at a moderate pace until 2026. Inflation is returning to sustainable levels as global influences on Irish inflation have eased, but domestic price pressures remain high. As economic activity is expected to be broadly in-line with its medium-term potential, policy attention needs to more firmly turn to bolstering that potential by addressing capacity constraints and reducing structural vulnerabilities in the economy and public finances.
Central Bank may delay Revolut plans to offer mortgages from early next year: Revolut’s proposal to introduce mortgage services in Ireland by the early part of next year may face delays due to potential regulatory actions by the Central Bank of Ireland. The company, which reportedly serves around 2.7 million Irish customers, intends to commence its mortgage lending activities in the country during the first half of the following year. Holding a banking license in Lithuania, Revolut is eligible to extend credit in Ireland by leveraging its Lithuanian license. However, there is some uncertainty regarding the extent of oversight the Central Bank of Ireland might exercise over Revolut’s mortgage lending operations. Despite Revolut’s regulation in Lithuania, some financial authorities believe that the Central Bank of Ireland should still play a role in supervising the firm’s mortgage offerings in Ireland.
How KPMG can help
KPMG has a large team of professionals with extensive knowledge and expertise in Financial Services, Banking, Aviation Finance, Insurance and Asset Management. KPMG Ireland can leverage a network of multidisciplinary professionals, stretching across Europe and beyond. Supported by this global network, KPMG Ireland can provide a broad range of support, advice, and guidance on how to address the challenges you face.
Useful links
- Horizons - the latest developments in Financial Services
- KPMG ECB Office - the latest insight into SSM related issues
- Risk & Regulatory Insights - from KPMG EMA Financial Services
- Global Banking M&A Trends - the latest in regional trends and deep dives into key markets in M&A
Owen Lewis
Partner, Head of Management Consulting, Head of Banking & Capital Markets
KPMG in Ireland
