Banks defend soaring profits after '10 years of dulled profitability'

Brian Hayes, chief executive of the BPFI, also defended the banks on interest rates, saying they have been slower to pass on ECB increases than other eurozone countries

Brian Hayes, chief executive of the BPFI, said banks are more profitable due to their reliance on interest rate income as well as taking on customers and loans from Ulster Bank and KBC. 

Representatives of the main Irish banks have defended their increasing profits on the back of rising interest rates claiming the sector has been through “10 years of dulled profitability”.

Today, representatives from AIB, Bank of Ireland, Permanent TSB as well as the Banking and Payments Federation (BPFI) appeared before the Oireachtas Finance Committee.

During the meeting, the representatives were challenged by Sinn Féin’s Pearse Doherty on the increasing profits they were making following successive interest rate rises by the European Central Bank with the Donegal TD stating the banks are “going to continue to be super profitable” unless they reduce lending interest rates or increase savings rates.

In the first six months of this year, AIB posted an operating profit of over €1.2bn, Bank of Ireland posted €1bn in profit during the same period while Permanent TSB, the smallest of the three banks, posted €26m in pre-tax profit compared to a €36m loss during the same period in 2022.

Brian Hayes, chief executive of the BPFI, said the banks are presenting higher profits because they are bigger than they were before — having taken on customers and loans from the departed Ulster Bank and KBC — and rising interest rates which they are overly reliant on for their income.

Mr Hayes said that 80% of income for Irish banks is from interest rate income while the eurozone equivalent is 54% where income from fees is more common.

"The fact is we've come through 10 years of very dulled profitability, two of those years no profit at all,” he said, adding that there are additional costs for banks to consider. “Profitability is a cyclical thing,” he said.

Interest rates

Mr Hayes also defended the banks on interest rates, saying they have been slower to pass on ECB increases than other eurozone countries.

Since July last year, the ECB has raised interest rates by 4.5%. According to the latest Central Bank data, the average interest rate for new mortgages as of July is just over 4% compared to 2.63% in July 2022.

Given the rising profits being reported by the banks, the sector has been under pressure to do more for struggling mortgage-holders who have seen their repayments increase significantly. As of the end of June, there were close to 30,000 mortgages-holders in arrears for over 90 days.

Colin Hunt, chief executive of AIB, acknowledged that “rapid increases in interest rates make loan repayments more challenging for many mortgage customers”.

“Thankfully, we have not seen any material increase in potential or actual arrears but are aware that this situation may change and keep it under constant review,” he said.

Myles O’Grady, chief executive of Bank of Ireland, said 70% of their mortgage customers are on fixed rates and the majority of those are not due to expire until 2025. “We’re very aware that some customers may get into financial difficulty and this is something we are closely monitoring,” he said.

Mr Hayes said that the banking sector has recently announced measures for customers who are finding it difficult to make their repayments.