Mortgages  

Irish banks urged to pass on rate cuts to borrowers

Irish banks urged to pass on rate cuts to borrowers

Irish Taoiseach Enda Kenny has criticised Allied Irish Bank for not passing on interest-rate reductions to its mortgage customers, many of whom are in the UK.

The head of the Irish government warned that Irish banks including AIB, should be passing on savings to consumers in the wake of ECB cuts, particularly in the case of those with variable rate mortgages.

He said: “We did not fix those banks for the benefit of the banks, but rather for their customers. I expect the banks to do better than they have been doing in respect of variable mortgage interest rates.

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“They are now back in profitability and they are paying less interest rates themselves on the money that we have to borrow.”

Loan typeNumber held by AIB in the UK in 2014
Variable rate€11,225m (£8,118m)
Fixed rate€898m (£649m)

According to its 391-page financial results for the year ended 31 December 2014, last year AIB, parent company of Northern Ireland’s First Trust Bank, had €2.52bn (£1.82bn) in residential mortgages to UK customers. This compared with €36.32bn (£26.25bn) in residential mortgages in Ireland.

According to the results, in 2014 AIB had €11.23bn (£8.12bn) in variable rate loans and receivables to customers in the UK and €59.62bn (£43bn) in Ireland.

David Duffy, the bank’s outgoing chief executive, noted in a statement that AIB had paid approximately €2.4bn (£1.74bn) in fees and coupons since 2008 to the state following a government bailout.

He said: “Following the injections of capital into the group since 2009, the state holds 99.8 per cent of the ordinary shares in the group and therefore the significant majority of the value of the group rests with the state.”

Pressure has intensified on the banks following cuts to European interest rates.

ECB president Mario Draghi announced in September 2014 that the benchmark interest rate would be cut to 0.05 per cent.

The ECB had already cut its rate from 0.25 per cent to 0.15 per cent earlier in the year.

Earlier this month, Irish finance minister Michael Noonan and Patrick Honohan, governor of Ireland’s central bank, met to discuss the issue.

In a statement a department of finance spokesman said: “The governor and the minister noted that the standard variable rates charged in Ireland are higher than other Euro area countries and have not fallen in line with ECB wholesale rates.

Right to reply

An AIB spokesman said: “AIB, EBS and Haven reduced mortgage interest rates for new and existing customers with effect from 1 December 2014.

“From that date, customers benefited from a reduction of 0.25 per cent in the standard variable rate. The move benefited approximately 146,000 existing mortgage account holders.

“For example, customers with a €200,000 (£145,000) mortgage are now saving up to €334 (£242) per annum, based on a 25-year term.

“AIB was in a position to reduce variable mortgage interest rates due to the bank’s underlying positive performance and funding cost reductions.

“AIB currently offers some of the lowest variable rates in the market. The bank keeps its mortgage rates under constant review.”