The Central Bank has defended its probe into the €1bn industry-wide tracker mortgage scandal, saying the recent addition of 4,000 AIB customers came about directly as a result of its intervention, writes Eamon Quinn and Geoff Percival.
AIB added 4,000 customers who weren’t offered a switch to a tracker mortgage when their fixed-rate loan expired to its own redress scheme in December. They were offered a 7.9% prevailing tracker rate as well as compensation. An AIB spokesman said the new rate included the average ECB rate of 1.1% plus an average margin of 6.8% and meant customers had suffered no financial loss.
Fianna Fáil finance spokesperson Michael McGrath had described the 7.9% rate as a “concoction” which needed to be “vigorously challenged” by the Central Bank. “It would appear the Central Bank is backing AIB’s interpretation of the prevailing rate and believes it is fulfilling its obligations,” he said.
The Central Bank said inclusion in the redress scheme “ensures that those customers have the opportunity to utilise, to the full extent, the examination’s appeals processes should they be dissatisfied with any aspect of their redress and compensation offer”.
The flare-up in the tracker mortgage row came as the S&P Global Ratings added a degree of scepticism that selling off distressed home and buy-to-let loans offered a panacea for Irish banks.
Their balance sheets have shrunk so significantly that even a vibrant economy would not fully push them to full financial health, the ratings firm said.
In its new report, Merely A win, No Grand Slam Glory For Irish Banks, the analysts said Irish lenders will have their work cut out because the small size of the market and low interest rates will mean they will have to do more to curtail costs.
It said its upgrades at the end of last year for Bank of Ireland and AIB reflected 2017 earnings results that the banking system was “steadily rebuilding its creditworthiness” and it still may consider what it called further “selective upgrades”.
S&P was less enthusiastic about the banks’ chosen strategy of selling of troubled loan books will by itself deliver them from their “past mistakes”, because banking has become significantly more challenging, it said.
“However, deleveraging on its own cannot lead to glory. As banks seek to grow their balance sheets and garner new business, they also have to adapt to the changed world of banking that has emerged while they were tied up dealing with their past mistakes.
“These challenges include more demanding requirement from customers and regulators, and the need for an enhanced digital capability.
“Operating in a small market, Irish banks will have to work extra hard to better adapt their cost base in a low-interest rate environment,” it said.
It said the buoyant economy will help drive profitability through 2019 which should, in theory, help the Irish banks in their plans to sell non-performing loans.
However, “Irish banks’ high non-performing loans levels remains a key relative weak spot despite good progress in 2017, in which total non-performing loans reduced by almost a quarter, by our calculations,” S&P said.
It estimates an average 21% of domestic loans were non-performing.