Will foreign banks retreat from Ireland?

Foreign-owned banks operating in Ireland have been hit nearly as hard as their domestic rivals by the slumping economic conditions and have been scaling back. But do comments from Dutch firm Rabobank that it's now "impossible" to trade in Ireland suggest an exodus is on the cards?

Rabobank's Irish subsidiary, ACC Bank, has cut 200 staff this year - amounting to nearly a third of its total workforce - and has lost €5bn on its Irish loan book.

Its chief financial officer, Bert Bruggink, said: "Given the short and medium term economic prospects we have concluded there is little hope that the Irish economy will recover in the near future and that is why we have decided to gradually reduce our operations in Ireland."

It's not the only foreign bank to suffer. Ulster Bank - owned by Royal Bank of Scotland - has plans to cut a further 250 staff, following on from the 750 redundancies last year, and there are murmurs that Bank of Scotland (Ireland) is set to scale back following impairments on bad loans rising to €1.07bn for the first half of 2009.

On the upside, while Danske Bank chief Peter Staarup concedes that it was the wrong time to enter the market through its National Irish Bank operation, it intends to stay.

"We have no plans to abandon the Irish market and we will make our franchise more efficient, waiting for the upturn which will come one day," he said.

Brian Lucey, finance professor at Trinity College, believes it's inevitable that international banks will scale back their Irish operations in the near future.

"The more straight talking foreign banks are saying that not only are economic conditions are bad, but the macro political situation is such that they don't want to be too involved with Ireland at this time. It would be an awful shame as the banking system needs robust competition," he says.

Enda Faughnan, head of tax financial services at PricewaterhouseCoopers in Ireland, says that those firms relying on the domestic marketplace have inevitably struggled this year. However, he insists Ireland remains attractive to other international financial services firms.

"Those financial services firms setting using Ireland as a platform for international activities remain attracted to the country," he says. "We've continued to see a healthy level of interest, even within the last 12-18 months."