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Friday 28 July 2017

Critics slam Ulster Bank loan fee 'profit'

Handling charge not in keeping with the spirit of low-cost scheme, says ICMSA

However, it has emerged that farmers who were drawing down the State and Europe-supported loans through Ulster Bank were also being charged a 1pc handling fee. Stock photo: PA
However, it has emerged that farmers who were drawing down the State and Europe-supported loans through Ulster Bank were also being charged a 1pc handling fee. Stock photo: PA
Ulster Bank HQ in Dubin.
Louise Hogan

Louise Hogan

Ulster Bank is being accused of "profiteering", as farm bodies criticise charges on its 'low-cost' loan scheme for farmers.

There has been strong demand for the €150m Strategic Banking Corporation of Ireland (SBCI) fund which offers loans at interest rates of 2.95pc, as farmers seek cash flow amid volatility in milk and grain prices.

The scheme was touted as a low-cost loan scheme. However, it has emerged that farmers who were drawing down the State and Europe-supported loans through Ulster Bank were also being charged a 1pc handling fee.

Farm bodies warned this meant farmers availing of the SCBI loans through Ulster Bank could potentially pay as much as €250,000 in total handling charges as the bank had a loan fund of €25m.

Bank of Ireland and AIB - which administered €65m and €60m of the fund loans, respectively - both confirmed they charged no handling fee. Ulster Bank previously came under fire after €125m of farmer loans were sold off to so-called vulture funds.

Charge

The ICMSA said Ulster Bank's charge was against the "spirit" of the scheme, while the ICSA accused the bank of "profiteering" on the agricultural cash-flow support loan scheme.

Documents seen by Farming Independent showed Ulster Bank charged a 1pc arrangement fee to all farmers that applied for the scheme. Ulster Bank stated the loan scheme was "fully subscribed" and, like all loans to small and medium businesses, there was an "arrangement fee of up to 1pc".


The SBCI stated the three lenders were permitted to compete on administrative fees for the scheme, with more than 4,000 farmers due to get loans.

ICMSA president John Comer said it was not in keeping with the spirit of the loan scheme and would strike farmers as another example of "unfair" charging.

"That interest is more than sufficient in terms of margin for the bank and we note too that neither of the other banks involved in the initiative have felt the need to make this additional gratuitous charge," he said, adding the ICMSA will bring up the matter when it meets Ulster Bank tomorrow.

The ICSA's rural development chairman Seamus Sherlock criticised Ulster Bank as "profiteering" from the support scheme.

The scheme announced in the Government's 2016 Budget was developed to support farmers experiencing short-term financial pressure due to price volatility. For the scheme, the Government leveraged €11m of EU aid backed up by exchequer funds of €14m to provide an interest subsidy fund of €25m. Farmers could apply for an unsecured loan up to a maximum of €150,000 over six years at a rate of 2.95pc, with optional interest-only repayment periods. "The spirit of this was that the 2.95pc interest rate, coupled with the interest subsidy, means that banks should have adequate margin without resorting to additional creaming off of money from farmers," said Mr Sherlock.

He welcomed the decision by Bank of Ireland and AIB not to charge any handling fee. "If all banks had taken this approach, it would have amounted to some €1.5m taken as extra profit out of farmers' pockets." He said the tight timeframe and huge demand meant farmers had no potential to shop around and were a "sitting duck" for this charge.

Average

Ulster Bank stated the average loan size under the scheme was €50,000, with 500 customers expected to draw down loans.

John Fitzgerald, head of Bank of Ireland Agribusiness, confirmed they charged no handling fee, with 60pc of the €65m drawn down. "The scheme was designed to replenish working capital on farms - farmers had used cash flow and when prices dropped, they felt the squeeze," he said.

AIB confirmed no handling fee was charged.


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