AIB’s €1.9bn profit but no interest cuts
Hard-pressed mortgage borrowers pay top rates
STATE- owned AIB has no plans to cut its mortgage rates despite announcing profits of €1.9billion for last year.
The bank was given a €20billion taxpayer-funded bailout more than five years ago as it teetered on the edge of collapse in the financial crisis.
But AIB chief executive Bernard Byrne said the lender had cut interest rates by 0.75% ‘over the course of the last 12 or 15 months as we saw the cost of deposits, the cost of funding, coming down’.
He said: ‘We said we will keep it under review and we will keep it under active review.’
The bank charges 3.55% on its standard mortgage – more than 1.5% above the euro area average of 2.09%. It means a homeowner with a €300,000 mortgage over 25 years will pay €2,700 a year more than someone with the same homeloan in continental Europe.
AIB yesterday said it made a pre-tax profit of €1.9billion last year, up 72% on 2014. It set aside €925million to cover bad loans. It has also set aside €190million for the ‘refund of interest and compensation’ for customers who were moved off low-interest tracker mortgages to fixed rates and not allowed to return to them.
David Hall of the Irish Mortgage Holders’ Organisation said: ‘In announcing their 2015 results, AIB disclosed, for the first time, that they have taken a provision of €190million relating to the refund of interest and compensation relating to tracker mortgages – finally confirming what many have been saying for years – that there is a significant problem in AIB with tracker mortgages.
‘This disclosure by AIB confirms what we have been saying for over 12 months: AIB has a serious issue relating to tracker mortgages.’
He believes around 3,000 AIB mortgage holders were affected by losing their tracker rates.
He said: ‘The Permanent TSB Redress Scheme, which affected 1,300 customers, is estimated to have cost PTSB about €75million. Given the size of the provision taken by AIB is more than twice this we estimate that at least 3,000 people could be affected.’
But the return by AIB to strong profits was welcomed by Mr Byrne as the bank prepares to be sold off by the State in the autumn.
He said: ‘That is really important because we’ve driven our non-performing loans down by €9billion in the period to €13bil- lion, so the end is in sight for that. We repaid the State almost €2billion in December.’
Mr Byrne said the lender was financially in a good position to be sold off.
‘We’ve got through €17billion of impairments [bad debts] in two years, we’re very well provided on that, he said.
He described the results as ‘great’, saying: ‘Profits of €1.9billion, up €800million on last year driven by strong underlying profitability and that’s because our income’s up 4% and our costs are down 8%.
‘But there is that one-off number of €900million coming from credit write back as we resolve these legacy debt problems.’
Tracker mortgages, which are tied to the European Central Bank base rate at just 0.05%, have proved a major problem for many Irish banks.
They were issued in large quantities at the height of the boom. Now, with the ECB rate at a record low, banks are losing money on their trackers as they have to borrow at high rates but can only charge such tracker customers low rates.
State bank to be sold off in autumn