Ulster Bank suffers from "delusions of heroism" and is running scared of a customer exodus, according to Permanent TSB.

It's entertaining knockabout stuff, all part of the rough-and-tumble to be expected in an industry that is increasingly edgy about the arrival of new competition.

But McCarthy believes that reality has been obscured amid all of the mud slinging.

The 43-year-old accountant, who marked two years at the helm of Ulster Bank on 5 January, would prefer to keep his head down. He says he is more interested in delivering results than shouting from the rooftops.

"We've been on a two-year journey since I took over, and a lot has been achieved in this time, " he says. "The crucial thing is delivery, not talking about what you'd like to do or what others are doing."

Those achievements include 100% mortgages for young professionals, free switches for home owners moving their mortgages from other lenders, and a rebate of the government's 40 annual tax on credit cards if you spend over 6,000 a year on plastic.

While Ulster might not be first with free banking, it is the first to roll it out for everybody without their even having to ask.

"It is important not to disadvantage existing customers, " says McCarthy. "We have 400,000 current account customers who will benefit [from free banking] immediately.

"A lot of people want to protect their back books by only giving free banking to new customers. Our view is that we should treat all customers equally."

In common with the other big banks, Ulster Bank has boomed on the back of a buoyant economy. It contributed £251m ( 370m) to the bottom line of its parent, Royal Bank of Scotland, in the first half of 2005, an 18% increase on the previous year.

McCarthy concedes that costs have risen significantly at the bank, but "only because we are investing heavily in the business".

This has led to 800 extra staff, bringing the headcount to 5,400. And at a time when some banks are quietly axing marginal branches, it has opened six new outlets, branded as either Ulster Bank or First Active, the mortgage bank it bought for 887m in 2004.

The biggest coup came last year when it wrestled control of the campus bank at University of Limerick from Bank of Ireland.

The entire network of 270 branches North and South is undergoing a 73m facelift at the moment, with the tired triangle logo of long-time parent bank, NatWest, being replaced with the sharper corporate identity of RBS, which swallowed NatWest after an audacious takeover battle in 2000.

The upgrade is happening quietly behind the scenes, even though it is costing almost half the amount that RBS's arch-rival back at home, Halifax Bank of Scotland, is investing to break into Irish retail banking.

Amid a blaze of publicity, HBOS is spending 160m to convert a chain of former ESB shops into a national network of 46 bank branches.

HBOS's iconic chief executive, James Crosby, was in town last week to cut the tape at the first of the Bank of Scotland branches, and used every opportunity to take a swipe at the competition in Ireland. He accused them of living off the fat of the land, with lending margins on mortgages and consumer credit that are twice the norm in the UK.

McCarthy shares the industry's reverence for Crosby's achievements at HBOS, but quibbles with his arithmetic when it comes to Ireland. "I'm not in a position to take issue with the figures because I haven't seen his analysis, but any analysis we know of shows this is a highly competitive market. Margins in the round are not very different between Ireland and the UK."

Nevertheless, the Competition Authority did not give the banking sector a completely clean bill of health when it wrapped up an exhaustive investigation of the industry last year. It concluded that small business customers, in particular, are being squeezed by a lack of choice, which is costing them 85m a year in higher interest costs. This is a market where Ulster Bank is an important player.

"I don't think the Competition Authority found anything particularly remiss, " McCarthy argues, "and most of the remedies they suggested are addressed to the regulator or the state rather than to the banks."

The automatic assumption is that people are held captive by their banks because there is nowhere else to go, but McCarthy suggests there could be other reasons for our loyalty: "Inertia is not all down to laziness or lack of competition. It's entirely possible that customers are happy with what they've got."

While new entrants to the market might claim to be riding to the consumer's rescue, McCarthy says the real reason they are here is to catch a part of Ireland's continuing growth.

"Every bank wants to participate in growth, " he says, "and it's the growth story they've come for, rather than because of a lack of competition. The reason RBS has invested so much in this economy is that they like the growth story."

Property lending is a star performer for Ulster Bank, with the mortgage book surging by more then 10% in the first half of 2005 to reach £11.3bn ( 16.5bn). McCarthy says this leaves it snapping at the heels of Permanent TSB and Bank of Ireland as the biggest writer of new home loans after adding in lending by First Active, which continues to trade as an independent mortgage brand.

On the corporate side, Ulster is bankrolling a growing list of property tycoons, including Sean Dunne's blowout bid for control of the landmark site in the Ballsbridge, Dublin, site currently occupied by Jury's hotel.

Is McCarthy not worried that the credit boom will turn to bust, especially with more hikes in interest rates on the horizon?

"Our in-house economists tell us that the base rate could go to 3% within 12 months.

That's well capable of being accommodated and not something we'd consider to be at stress level. If you believe in Ireland's economic story, and assuming we don't have an unemployment shock, you've got to believe that asset quality will remain strong.

"Of course, we've got to be careful - it's our money we're lending and we want it back . . . but our sense [of the lending situation] is very positive."

Investors' obsession with bricks and mortar means there is no distinction in many people's minds between wealth management and buying property. McCarthy believes that, over time, Irish Ipeople will take a more balanced view of their finances, but he is not holding his breath.

The acquisition of NatWest brought Coutts, bankers to the queen of England, under the RBS umbrella. While it was once headed by an Irishman, David Went of Irish Life & Permanent, Coutts has yet to set up shop here.

"We have access to worldclass private-banking expertise should we choose to import it, " McCarthy says.

"Private banking is a very expensive business to get right. You can sink a lot of money for a return that might not be what you'd hoped."

In his two years in the job, McCarthy has overseen something of a clean sweep in top management at Ulster Bank. NatWest veteran Mike Bamber moved to Ireland to take charge of the retail business, while Robert Gallagher was poached from AIB last summer to become chief executive for corporate banking and financial markets.

"We work a lot on succession, making sure we have the right people coming through, " says McCarthy.

"We've recruited a lot from the competition, especially for business banking."

But even the best-laid plans could not prevent the defection of Andrew Healy, former head of Ulster Bank's retail banking business in Northern Ireland, after he was offered a shot at the top job at National Irish Bank.

The RBS group has also lost the talents of Richie Boucher, the new head of retail banking at Bank of Ireland, after it became clear with McCarthy's appointment meant that the top job at Ulster Bank will not become vacant for some time ahead.

Nobody doubts his ability to get the job done. But as bankers gear up for battle . . .even if it develops into little more than a phoney war . . .McCarthy may have to get down and dirty with the rest of them.

THE MAN AND HIS COMPANY

CORMAC MCCARTHY
Job: Chief executive, Ulster Bank
Age: 43
Lives: Booterstown, Co Dublin
Education: Terenure College, followed by commerce degree at UCD, then accountancy at KPMG
Career: Started with Woodchester Investments.

Joined First Active at the time of its stock market flotation in 1998, and was promoted to chief executive in 2000. Appointed chief executive of Ulster Bank in January 2004.

ULSTER BANK
Assets: 45bn (as of June 2005)
Branches: 272
ATMs: 920
Customers: 1.5 million
Staff: 5,400
In the news: Announcement of plans to launch free banking for all Ulster Bank customers from 17 February.