Sunday 4 December 2016

AIB variable rate cut will pile pressure on other lenders to act

Published 23/04/2015 | 02:30

David Duffy, CEO of AIB, who appeared at the Oireachtas Joint Committee on Finance, Public Expenditure and Reform yesterday. Photo: Steve Humphreys
David Duffy, CEO of AIB, who appeared at the Oireachtas Joint Committee on Finance, Public Expenditure and Reform yesterday. Photo: Steve Humphreys
AIB boss David Duffy (pictured) told the Oireachtas Finance Committee the bank is set to reduce the interest on standard variable rates in the next “month or two” (Gareth Chaney)

AIB is set to bow to public pressure by cutting the standard variable rate it charges 140,000 mortgage holders within months.

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It follows a wave of anger on the issue and will pile pressure on other lenders to bring down their charges.

A cut of around 0.25pc is expected as early as June for customers of AIB and its EBS and Haven brands.

The Irish Independent's Campaign for Mortgage Fairness has focused intense pressure on the main banks, the Government and the Central Bank to address the huge gap between the interest paid by customers with standard variable rates and those on tracker loans.

Across the banks the average interest rate on a tracker is just over 1pc. This compares with 4.5pc on a standard variable rate. But AIB has signalled it will reduce the interest on standard variable rate home loans in the next "month or two".

It will do so if the bank's cost of funds, operating costs and assessment of risk continue to decline, AIB chief executive David Duffy told the Oireachtas Finance Committee yesterday.

"If we see the same positive trends, then we will be in a position to cut the rates," he said.

Fianna Fáil's Michael McGrath, who has campaigned on the issue, welcomed the news.

"The fact that the average interest rate on new mortgages in the euro area is 2.09pc compared with a rate of well over 4pc in Ireland underlines the extent to which banks are ripping off their variable rate customers. This must not be allowed to continue," he said.

AIB accounts for about 140,000 of the country's 300,000 standard variable mortgages.

Controversy has intensified after the European Central Bank (ECB) slashed the official interest rate for the euro area to just 0.05pc, an all-time low.

Interest on trackers automatically fell in line with the ECB rate, but many standard variable rates remain unchanged.

"The ECB rate is not relevant to AIB," Mr Duffy told TDs. Borrowing from the ECB now accounts for just 3pc of AIB's funds, he said, compared with 63pc from customer deposits.

The bank's overall cost of borrowing was 1.57pc, he said.

Mr Duffy said the bank's current interest charges reflected its cost base, including the cost of borrowing money, running costs such as staff pay and overheads and the need to include a margin in loans to reflect the risk of default.

However, he told TDs and senators that each was falling.

Meanwhile, Mr Duffy said the bank had no position on whether the Government should reduce the length of bankruptcy from three to one year, but does not see any "fundamental problem" with such a change.

He rejected suggestions that a "tsunami of repossessions" was set to wash over the country.

Figures supplied by the bank to TDs and senators for yesterday's hearing show legal actions to repossess 5,709 homes had been initiated by the lender by the end of 2014.

However, Mr Duffy said a limited number of cases would result in formal repossession, because many customers in long-term arrears engage with the bank once the legal action starts.

Irish Independent

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