IRELAND's biggest bank will respond to its latest taxpayer bailout by raising mortgage rates by 1.5pc this year, the Irish Independent has learned.
Allied Irish Banks (AIB) is preparing to hit customers with two more interest rate hikes on top of the 0.5pc rise confirmed yesterday before the end of the year.
The revelation comes as AIB and other crisis-hit lenders prepare to be bailed out by a further €16bn in the banking sector's biggest overhaul yet.
By this evening almost all of the entire banking sector will be under state control. Permanent TSB will be the only bank not to get a bailout.
Finance Minister Brian Lenihan will today signal the Government's intention to take a majority stake in AIB as the first details of the loans to be taken on by the National Asset Management Agency (NAMA) are also released.
For the first time, the public will learn how much the banks' toxic loans are actually worth.
Discounts or 'haircuts' on these loans will range from 35pc to 60pc. That means NAMA will pay the banks up to 60pc less than they value the loans themselves.
Mr Lenihan was last night putting the finishing touches to the plan to change the entire banking sector. He will brief the Cabinet on his strategy this morning before announcing the plan in the Dail.
Mr Lenihan yesterday said it was essential that the Government acted now after gaining credibility internationally for managing its own finances.
"We need to translate all that international confidence into the banking sector as well and sort it out once and for all," he said.
But, in a surprise move, the Government will put money into Anglo Irish Bank and Irish Nationwide by using IOUs rather than hard cash.
In an attempt to save money, it will instead invest the money over a 10-year period, rather than upfront.
It will commit to a certain amount and then pay by instalments as is deemed necessary.
Meanwhile, taxpayers who are coming to the rescue of the banks will be hit on the double as lenders pass on a raft of interest rate hikes to their customers.
In survival plans presented to the European Commission, both AIB and Bank of Ireland confirmed they planned to push through several mortgage rate hikes.
AIB yesterday hit existing mortgage holders with interest rises just hours ahead of the expected announcement of the nationalisation of the bank and its latest bailout.
Bank of Ireland is now expected to push up its standard variable rates for existing customers by 0.5pc within a fortnight.
This is set to be followed by EBS Building Society hitting existing standard variable rate customers with higher rates.
In all, an estimated 300,000 homeowners have standard variable rate mortgages.
Existing customers of AIB will now have to pay 0.5pc more for their mortgages, a move that will add €65 a month to the repayments on a €250,000 mortgage.
AIB is also hiking its fixed rates from the start of business today. The bank had the lowest fixed- and variable-rate mortgages before the rises.
AIB would not comment on the viability plan it gave to the EU Commission, saying the document was "confidential".
However, the Irish Independent understands that the bank has promised to push up standard variable and fixed rates by 1.5pc by the end of the year in a bid to return to profitability.
Yesterday's move by AIB will hit existing customers who have standard variable rate mortgages. A homeowner who borrowed more than 80pc of the value of their home will see their interest rate rise from 2.65pc to 2.99pc, a rise of €80 a month or almost €1,000 a year in repayments on a €300,000 mortgage.
AIB's fixed rates, which were the most competitive in the market, are all rising. The changes will have no impact on those who have tracker mortgages and fixed-rate deals.
AIB last night insisted that it took the decision itself to hike its mortgage rates just days ahead of an expected partial nationalisation of the bank.
A Department of Finance spokeswoman said the home-loan rise was a matter for AIB.
She denied Mr Lenihan wanted the rate hike out of the way ahead of the State moving to take a majority stake in the bank in a bid to avoid opposition claims that taxpayers were being punished on the double.
Bank of Ireland, when asked when it was hiking its standard variable rates, would only confirm it was monitoring its rates on a daily basis. However, it is expected to push up its standard variable rates by 0.5pc within the two weeks.
Ulster Bank, EBS and National Irish Bank said they had no immediate plans to hike their standard variable rates. Irish Nationwide Building Society did not return calls.
AIB, which recently stopped accepting mortgage switchers, has also changed the way it calculates what a first-time buyer can borrow, meaning most will qualify for smaller mortgages.
Consumer watchdogs said the increases would push many homeowners over the edge financially.
Dermott Jewell, chief executive of the Consumers' Association of Ireland, accused AIB of exploiting the fact that its customers were trapped and unable to move their mortgages.
YESTERDAY Brian Lenihan set the scene -- or tried to set the scene -- for today's announcements on the collapse of the Irish banking system and the construction industry. The decisions of which we learn today will be of historic importance, and the sums involved breathtaking.