Saturday 17 March 2018

Banks not contributing to society - Elderfield

Charlie Weston, Niall O'Connor and Donal O'Donovan

BANKS had been given a life-saving blood transfusion by taxpayers but returned the favour by charging customers more, the financial regulator has said.

The country's top regulator, Matthew Elderfield, also accused the banks of not properly contributing to society.

His comments came on the day it emerged that Bank of Ireland is to push up the interest on credit cards by as much as 4 percentage points, in a move that will hit thousands of householders. Many struggling consumers are so short of cash they are using credit cards to juggle their finances.

The new rates, which will be between 0.7pc and 4pc higher, take effect from December 18 next. They apply to purchases on cards. The bank, which got €4.7bn from the taxpayer, said it had not raised rates since August 2011.

Mr Elderfield, who is also the deputy governor of the Central Bank, said banks faced the uncomfortable task of "telling the neighbours who donated blood to them that they need to charge them more as customers".

The State has nationalised five of the six domestic banks -- AIB, EBS, Permanent TSB, Irish Nationwide and Anglo Irish Bank -- at an overall cost of €64bn.

Mr Elderfield said returning to profitability was one of the key challenges the banks faced.

"Progress on profitability will only be possible in the interim due to gradual repricing of assets to reflect the cost of funds," he said.

That implied further interest rate hikes, he said.


AIB has announced two hikes in its variable rates in quick succession. Bank of Ireland has hiked its variable rate by 0.5pc, while Permanent TSB has signalled a rise in fixed rates.

Speaking at an event in UCC, Mr Elderfield said the banks were out of the "critical ward following radical surgery and an extensive transfusion of blood from the Irish taxpayer".

But, he said, they were still not contributing properly to society as they should and remained weak.

However, the central bank deputy governor confirmed that Ireland may be close to removing the banking guarantee that makes the State responsible for deposits kept in the bailed-out banks, confirming earlier reports in the Irish Independent.

"My view, we are getting close to the position where the changing circumstances arising from successful implementation of the IMF/EU programme and the introduction of the banking union should permit the full removal of the government guarantee," he said.

In a clear reference to speeches earlier this week calling on the banks to face up to their mortgage problems, Mr Elderfield said the banks should be able to cope with losses even if they fully faced up to the problem.

Lenders had set aside "prudent provisions" for bad loans and retained a "healthy buffer" of additional capital, he said.

Banks wouldn't know whether they had enough capital to withstand ''extreme loss developments" until they worked out what they could recover or needed to restructure among troubled loans, he said.

Lenders may be encouraged to hoard reserves and restrict lending until a "case-by-case re-underwriting" of soured loans was complete, he said.

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business