Friday 28 October 2016

I won't bow to political pressure to cut rates - BoI chief

Published 03/05/2015 | 02:30

DETERMINED: Bank of Ireland chief, Richie Boucher, says he will not lower the bank’s standard variable interest rates
DETERMINED: Bank of Ireland chief, Richie Boucher, says he will not lower the bank’s standard variable interest rates

Bank of Ireland chief executive Richie Boucher has indicated he will not bow to political pressure to lower standard variable interest rates for hard-pressed mortgage customers.

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When asked if Bank of Ireland would follow AIB or any other of its competitors in cutting variable interest rates in the future, Mr Boucher told the Sunday Independent: "We don't slavishly follow the behaviour of others. You have to learn lessons from the past. We saw what was said at the Banking Inquiry last week."

The Bank of Ireland chief was speaking after Tanaiste Joan Burton warned that banks who refuse to lower variable rates will be targeted by the Government in the next Budget.

"If the banks simply can't recognise they have some obligation to people in Ireland in the context of the bailout that they've enjoyed, there are other avenues to address this," Ms Burton said.

And, writing in today's Sunday Independent, Finance Minister Michael Noonan confirmed plans to start talks with the main lenders this month, in which he "looks forward to hearing their plans" for passing on record low borrowing rates to customers.

"I intend, during the month of May, to initiate discussions with the six main lenders in Irish banking on the issue and look forward to hearing their plans for reducing interest rates.

"A series of reductions over a fixed time frame would be acceptable to me and in that context I welcome AIB's announcement as a good first step," the minister writes.

However, the Government's tough stance was undermined by comments of Central Bank Governor Patrick Honohan at the launch of the Central Bank's annual report, when he noted the Department of Finance "doesn't own all the banks" and was only a moderate shareholder in others. In the case of Bank of Ireland, the State retains a shareholding of just 13.95pc, while the €4.8bn bailout it received has been fully repaid.

Mr Boucher also said the bank "explained our position to the Oireachtas and I explained it at our AGM."

But he added: "I'm very comfortable explaining our strategy [on interest rates] and I'm very comfortable discussing it with the finance minister. It's always appropriate to explain our thought processes and our strategy to show that they are appropriate and sustainable."

When asked if he would consider cutting standard variable interest rates, Mr Boucher pointedly refused, saying it was important that Bank of Ireland mitigated its own risk and that of its mortgage customers against interest rate rises in the future.

Mr Boucher said the bank would do this by continuing with its strategy of offering customers reduced fixed rates for periods of between one and five years. The rates on offer, Mr Boucher said, more than reflected Bank of Ireland's reduced cost of funding.

"We are mitigating the risk for the bank and for our customer against interest rate rises in the future, and we are passing on more than the reduction in the cost of money with our fixed rates. It [a fixed rate] reduces the risk to the customer and to the bank," he said.

AIB - which is now 99pc owned by the taxpayer - last Thursday bowed to pressure from the Government, cutting its variable and fixed mortgage interest rates by 0.25pc and 0.38pc respectively.

The move was generally welcomed, and fuelled hopes that there will be more relief for the 300,000 mortgage holders in the country who are on variable homeloans.

Debt campaign groups argued the AIB reduction was the lowest it could have possibly cut its rates.

However, Mr Boucher argued that even cutting rates at this level posed a risk to banks.

"Interest rates are very low at the moment, but once they start going up, we don't want our customers or the bank to face liquidity pressure," he said.

Mr Boucher said it was important to point out that Bank of Ireland had no control over the interest rates applied to the monies it borrowed to fund its standard variable rate mortgage book, and that this was a "risk factor", which it was now seeking to minimise.

Mr Boucher said that while it was up to the bank's variable rate mortgage customers to make their own decision on whether to switch to a fixed rate, they could "make savings right away" if they did so.

"The cost of money fell by 23 basis points to the end of November 2014, and we cut our fixed rates accordingly.

"Our standard variable rate customers can avail of fixed rates of between one and five years. They can make savings right away," he said.

Sunday Independent

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