Can natural attrition really stave off Irish banking redundancies?

Irish banks' policy of relying on natural attrition has been relatively effective in reducing overall headcount over the last 12 months - but is it enough to prevent redundancy programmes in 2010?

As a result of hiring freezes, nearly 1,500 staff have left AIB over the last 12 months, while Bank of Ireland's headcount has shrunk by 1,700.

Last week, AIB's new managing director Colm Doherty hinted that redundancies may be necessary in 2010, while BoI has largely kept quiet about its intentions despite suggestions earlier in the year that jobs were on the line.

"The ability of banks in Ireland to increase profitability through issuing new loans at higher margins is hampered by lack of demand, and is likely to be limited for two or three years," says Oliver Gilvarry, head of research at Dolmen Securities. "Costs will have to be taken out, and unfortunately I would expect redundancy plans at some stage."

"The cost base of Irish banks is relatively high compared to their European peers," adds Brian Lucey, associate professor in finance at Trinity College, Dublin. "One of the easiest ways to bring this down is to reduce headcount."

The most likely victims of redundancies are the retail banking and support functions, suggests Gilvarry, while both AIB and BoI will be reluctant to cut from capital markets divisions, which have been key drivers of profitability this year.

Commercial lending is, of course, largely dead in the water, particularly within the property sector. However, the transferral of loans to NAMA in the coming months could provide much-needed activity.

"NAMA will deal directly with the top 100-150 borrowers, but the administration of the loans will be dealt directly by the banks and people will be required to manage these," says Gilvarry.