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Interest rate spread ‘uncompetitive’ Back  
The interest rate spread - the gap between wholesale deposit and lending rates - remains large in Ireland compared to our competitors, suggesting a lack of competition in the banking sector, according to the third annual report of the National Competitiveness Council.

Ireland was ranked twentieth out of the 24 countries surveyed, with an interest rate spread of 6.11 per cent. However, the council notes that this was based on 1997 figures and that a reduced spread is likely since Ireland joined the euro.

The report says that a more competitive banking sector is required to ensure that Irish enterprises, especially SMEs, do not face higher financing costs than their competitors in other eurozone countries.

To this end, the council welcomed the increased competition for domestic mortgages and savings provided by overseas banks using the telephone and internet during 1999.

Ireland ranks fairly well in the venture capital stakes, coming in fifth out of 17 countries in cumulative venture capital raised as a percentage of GDP (1.09 per cent). This ranking pertains to data for 1997.

With an average rate of return on capital of 17 per cent, Ireland ranks fifth out of 19 countries surveyed. The rankings are for 1998 figures and Greece was the highest came out best with an average rate of return of 24.3 per cent.

Elsewhere, the report calls for the establishment of a compensation board or arbitration system that is separate from the courts system, in an effort to reduce insurance costs. This new body would decide on compensation in cases where the parties agree to such arbitration as an alternative to expensive and protracted court proceedings.

This is the third annual report of the NCC.

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