David Prosser: Is 2010 the year of the new bank?

It is remarkable, given the opprobrium thrown the way of bankers since the credit crunch began, how many people want to be in banking. Indeed, if the Government has its way, 2010 may well be the year of the new bank.

Having promised in October to open the banking sector up to competition, ministers are keen to make good on the pledge as quickly this year as possible – hence the news yesterday that Northern Rock has now formally been split into good and bad bank constituent parts. That fires the starting gun on the race to buy up the decent bit of Rock, with both National Australia Bank and Virgin Money at the front.

Whoever wins, they will face competition from other new entrants to the banking sector. Tesco will further expand into banking this year while Lloyds and Royal Bank of Scotland must sell-off parts of their operations under the deal agreed with the European Commission, following the state aid they received during the banking crisis.

In effect, three new banks will have been born from the carnage of this crisis. Add in Tesco and other parties eyeing the sector – at least two Chinese banks, a venture from Sandy Chen, the banking analyst, and various private equity groups – and the sector may soon be unrecognisable.

Why so much interest in banking? After all, if the current market participants are to be believed, the regulatory backlash following the credit crunch makes it much tougher to earn a decent return. Higher capital requirements, tighter rules on liquidity and endless political pressures aren't, on the face of it, much of an encouragement to new entrants.

The answer is that despite all the whinging from the banks, this is a high-margin industry that serves a pretty captive audience. It takes a great deal to persuade someone to change bank account and while they're with you, there is tremendous scope for selling them all sorts of other costly financial services.

Moreover, with so many of the established players in banking currently hamstrung by their legacy issues – in particular, mounting bad debts and tarnished reputations – there has never been a better time to try to break their stranglehold.

Still, don't put your house on the new entrants succeeding. Britain's biggest banks, despite all the woes of the past two years, still have the advantage of scale. The merger of HBOS and Lloyds may have been savagely attacked, but it has created a bank with real dominance in many key areas. Royal Bank of Scotland is on the road to recovery, while Barclays has come through the crisis remarkably well. HSBC, meanwhile, was almost untouched. More competition there certainly will be, but banking may not change to the extent we might hope.