A THIRD banking force to provide competition to AIB and Bank of Ireland should specialise in lending to small businesses and should include Bank of Scotland (Ireland), a report by the union Unite is expected to recommend.

A report prepared by FGS Consulting on behalf of Unite says a four-way merger between EBS Building Society, Irish Nationwide Building Society (INBS), Permanent TSB and Bank of Scotland (Ireland) (BoSI) would give the proposed third banking entity the necessary “heft” to compete with the Republic’s biggest banks.

The report commissioned by Unite, which represents staff at EBS Building Society and Bank of Scotland (Ireland) (BoSI), is expected to argue that the inclusion of BoSI would not place any additional demands on the Irish Exchequer, noting that BoSI complies with capital adequacy requirements. It has been suggested that BoSI’s high loans-to-deposit ratio could make its involvement in a marriage of Ireland’s financial institutions more problematic. Unite has commissioned the report to encourage BoSI’s long-term involvement in the Irish market.

The Unite report is expected to say that a “third force” bank that includes BoSI would be best-placed to support small businesses, given BoSI’s track record in the small and medium enterprise (SME) sector. A “new” bank with sufficient critical mass would provide more effective competition to the major banks, which are more likely to “cherry pick” from long-standing business clients during a recession, it will argue.

The so-called “third force” in banking, if it included all four banks, would have a combined loan book of €75 billion once transfers to the National Asset Management Agency (Nama) by EBS and INBS are taken into account. It would also have customer deposits of €33 billion.

The Government is instigating a merger between EBS and INBS. Irish Life Permanent has pressed the Government to include its banking arm, Permanent TSB, in the so-called “third force” once the merger of the two building societies is completed, while British-owned BoSI signalled last autumn that it wanted to be part of the proposed entity.