Banks hitting many mortgage holders with double the interest rate they need to be profitable - Central Bank
Lenders could halve home-loan rates and still remain profitable
Banks are hitting many mortgage holders with double the interest rate they need to be profitable, the Central Bank has warned in a stinging rebuke to lenders' claims of putting customers first.
Deputy governor Ed Sibley told senior retail banking executives that customers had good reason to view their slogans with scepticism given that banks often "resisted doing the right thing".
He criticised overly hasty sales of loan portfolios, as well as banks keeping "loyal customers" on more expensive mortgages.
The Central Bank has had to push too many retail banks too hard over too long to actually put your customers first. Central Bank Deputy governor Ed Sibley
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He told the Banking & Payments Federation Ireland (BPFI) conference that banks should "proactively" offer the same lower rates to existing customers.
"Irish banks are determining that it's profitable to lend at somewhere between 2.25pc and 3pc for new customers - but are continuing to charge 4.5pc for existing customers," he said.
Mr Sibley said he accepted the banks' argument that operating costs here are higher than the EU average. But he said these don't explain differing rates between new and older customers, which can add tens of thousands of euro to a typical home loan.
"You are 'backing brave', 'providing help for what matters', 'the bank of you', and encouraging customers to 'begin' or 'keep going'.
"All are admirable sentiments and doubtless have been expensively developed," he said, referring to recent marketing pitches of AIB, Ulster Bank, KBC, Bank of Ireland and Permanent TSB.
He noted that banks here were required to keep 2.5 times more funds deposited on reserve versus EU norms because Ireland was a relatively "risky" environment.
While this extra tie-up of capital did cut into their potential profits, he said this didn't mean banks here couldn't charge rates nearer typical EU levels. These are around 1.5pc.
"Before there's too much complaining about capital levels driving interest rates, which is a factor, they (bankers) need to look in the mirror," he said.
In his prepared remarks, Mr Sibley repeatedly accused retail banks of making hollow promises and being forced by Central Bank pressure down the road of reform.
"On too many serious issues such as tracker mortgages and non-performing loans... the Central Bank has had to push too many retail banks too hard over too long to actually put your customers first," he said.
"Too often in the recent past, the retail banks' behaviours have not been consistent with your slogans and your stated desire to build trust and have long-standing relationships with your customers."
He said banks could demonstrate true commitment when customers hit "bumps in the road".
"In circumstances when trust is low and one party in the relationship has repeatedly resisted doing the right thing, one has to question the future of that relationship," he said.
Central Bank officials were "still having to push banks and non-banks too hard to take a customer-centric approach to resolving arrears", he said.
"What does it say on your commitment to delivering for your customers when you are still having to be pushed on mortgage arrears?
"What does it say about the sustainability of your concentrated business models that you are relying on inertia rather than proactively looking after your loyal customers?" he added.
A 30-year, €200,000 mortgage on a 4.5pc interest rate would cost €1,013.37 a month and produce a total interest bill of €164,813.42.
The same loan charged at a lower 2.25pc rate would cost €764.49 a month and €75,217.19 in total interest.
BPFI CEO Brian Hayes, sitting beside Mr Sibley, shot back at his claim that Ireland's mortgage market still features "dysfunction".
"If things are so dysfunctional in Irish banking," he said to the central banker, "why aren't we seeing international banks coming in to mop up all this great profit that exists in the retail market?"
Afterward, Mr Hayes told Independent.ie: "Banks recognise the journey they have to take to regain trust."
When asked if he accepted Mr Sibley's criticisms as fair, he said: "It's a narrative that I understand - but a narrative without many explicit examples.
"We all have to be careful about generalising."