Global giants such as HSBC and Barclays have moved into the corporate banking market, while Rabobank's deposit inflows have surged

As the banking sector awaits its final restructuring under the EU/IMF bailout, several foreign-owned banks operating in Ireland are developing strategies to exploit valuable niches neglected by their preoccupied local competition.

While Bank of Scotland (Ireland) is exiting the country at the end of the year, global heavy-hitters such as HSBC and Barclays, as well as more familiar names such as Ulster Bank and National Irish Bank, are scavenging the Irish market for rich pickings, especially in corporate banking and high-net-worth clients.

Concerns that BOSI would be the first of many foreign lenders to exit Ireland have receded. While Ulster Bank and NIB have been caught up in the crisis – both have had substantial losses on their property loan portfolios – they were among the first to recognise the scale of the problems and address them. With AIB and Bank of Ireland being forced to dispose of some of their value-added businesses, such as asset management and stockbroking, the competition is seizing the advantage.

One area in which foreign-owned banks have been particularly active is personal savings. As domestic banks continue to show weakness, deposits have flowed into the likes of Rabodirect, the UK's Nationwide building society, and NIB. There was a significant surge in outflows as Ireland entered bailout talks with the EU and IMF in November, but the flow has otherwise been steady, the banks report.

Rabobank's managing director, Roel van Veggel, said last month his bank saw deposit inflows treble for a short time. Rabo has some of the lower deposit rates in the market, but its AAA rating has proved attractive to customers seeking a safe haven for their funds. NIB, despite largely withdrawing its street-level retail presence in recent months, also has experienced an increased flow of deposits, but the bank cautioned savers not to get carried away regarding the safety of domestic banks.

"You have to be careful what you say as it suits nobody to see the Irish banks in distress but there has been a steady flow of both retail and corporate deposits in the last few months," said one executive at a foreign lender who asked not to be identified. "There's a lot of nervousness out there and you don't want to be seen to take advantage of it."

There is also increasing competition to snap up wealthy clients, once the exclusive preserve of Irish banks. Ulster Bank last month said it had hired a new team of relationship managers to provide specialist services to those with an income of €145,000 and savings of least €200,000. Though high-rollers are a small market they are particularly lucrative because of the opportunity to sell other fee-generating products.

Foreign-owned banks may be happy to compete for high-margin prestige business from corporate and high-net-worth individuals, but they are much less interested in the riskier and credit-starved SME sector, say some critics.

"The foreign banks are almost non-existent for SMEs at the moment," said Mark Fielding, chief executive of the Irish Small and Medium Enterprises Association (ISME). "Ulster Bank does plenty of talking but when it comes to loans it doesn't seem to be changing very much."

Among foreign-owned banks, Ulster Bank is by far the largest lender to SMEs, behind only Bank of Ireland and AIB with 16% of the market. But according to ISME data, that market share has remained relatively static.

The 'Big Two' of AIB and Bank of Ireland – with nearly three-quarters of the market between them – have to maintain at least €3bn each in small business lending every year according to the terms of their state recapitalisation. Yet according to the latest quarterly lending figures from the Central Bank, there has been a 5.1% reduction in SME lending overall, which suggests foreign-owned banks are reducing their exposure (see panel).

In September, Ulster Bank said it had €1bn available for SMEs in each of the next two years, but the amount it would lend depended on demand, not supply.

Fielding said SMEs were opting to pay down loans rather than seeking more credit. "My biggest worry is lack of demand," he said. "That's a real sign of the doldrums."

One area that is ripe for the taking is the corporate banking market. HSBC and Barclays have been able to get involved in deals that were traditionally the territory of the domestic institutions. Their global footprints have allowed them to bring in deals for Irish companies targeting overseas expansion while also serving the needs of multi-national corporations based in Ireland.

They have not had to work too hard to get a piece of the action. Both AIB and Bank of Ireland have largely withdrawn from overseas. AIB's capital markets division has shrunk its foreign presence, shutting offices in Sydney, Houston, Leeds and Edinburgh this year. While it says it can still serve its global clients from Ireland, without dealmakers on the ground it's increasingly hard to get involved in lucrative transactions such as corporate finance and M&A.

As one senior banker told the Sunday Tribune, the days of AIB and Bank of Ireland being able to offer a full service to clients are over as the government and the European Commission force them to concentrate on domestic operations. That has caused both of them to sell their stockbroking arms. Bank of Ireland has already sold its asset management division and AIB is in the process of doing the same. That leaves plenty of opportunities for international institutions to grab more business.

The foreign banks are here to stay.