Banks are relying on customers’ reluctance to switch mortgages to keep them paying higher interest rates, the Central Bank Deputy Governor has warned.
Figures released by the Central Bank in September showed the average interest rate on all new mortgages agreed in the Republic of Ireland was 2.98%, higher than the Eurozone average of 1.54%.
Ed Sibley said the Central Bank has acted to ensure that customers are informed if their provider is offering cheaper interest rates, but switching mortgages among Irish customers remains low.
Speaking at the Banking and Payments Federation Ireland (BFPI) Annual Retail Banking Conference, he said: “In the Irish mortgage market, there is a high reliance on inertia to enable sizeable differences in interest rates to persist between new customers and existing ones. Some products are being designed to embed that differentiated treatment.”
Mr Sibley said the Central Bank is still having to push banks and non-banks too hard to take a customer-centric approach to several issues.
“On too many serious issues – such as tracker mortgages, non-performing loans, some Brexit preparedness issues – 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 longstanding relationships with your customers.”
Mr Sibley said the Central Bank is concerned about banks exposing themselves to risk by offering new mortgage holders a “payment holiday” from the first stages of paying their mortgage.
“Irish retail banks are increasing their exposure to global leveraged finance markets and increasing use of non-price based incentives domestically – such as payment holidays for new mortgages – where the Central Bank has some concerns.”
Mr Sibley also criticised how some banks deal with customers facing mortgage arrears.
“A sustainable resolution of mortgage arrears has required determined and ongoing Central Bank intervention to protect consumers’ interests. It is disappointing that today the Central Bank is still having to push banks and non-banks too hard to take a customer-centric approach to resolving arrears,” he said.
He said there remains a need for substantial investment in Irish banks’ technology and data capabilities.
“Many banks still use outdated and fragmented IT systems. The foundations are not yet sufficiently strong to effectively manage the technology risks,” he said.
Mr Sibley said cybercrime is constantly evolving, with the frequency, sophistication and volume of attacks increasing.
He said: “The failure to adequately protect against cyber-attacks can have far-reaching repercussions given the interconnected nature of the financial system.
“Retail banks need to continue to invest more to increase resilience to service outages and cyber-attacks, as well as to keep pace with services offered by new financial technology firms.”