Squeeze on saving rates as mortgage cuts loom

Some of the highest savings rates on offer in Ireland are likely to be squeezed lower, a leading analyst has said, as the political war of words over the rates lenders charge for mortgage loans hots up more.

Emer Lang, bank analyst at Davy Stockbrokers, said that Permanent TSB, which pays among the highest rates to savers to hold their money for a year, “could have room to manoeuvre” to lower its deposits rates if pressure builds further on cuts to home loan rates.

After AIB and KBC said on Monday they would cut their mortgage rates, Fianna Fáil stepped up its home loans rate-cutting campaign, saying AIB should “urgently clarify” whether it plans to extend its lower mortgage rates to its EBS and Haven subsidiaries.

Pressure is likely to grow on other banks to cut their mortgage rates, but there will be “no knee-jerk” reaction from other lenders who are likely to assess whether their new home lending is affected by the AIB move, Ms Lang said.

She said that AIB’s mortgage rate cut may cost the bank less than many expect because its main brand is rich with tracker mortgages which are not affected by the variable rate reduction.

Banks which pay the highest deposit rates, however, could lower their savings rates to compensate for any future mortgage rate reductions.

“While the downward trend in mortgage rates looks set to continue, there may yet be some room for manoeuvre on deposit rates,” said Ms Lang.

“Central Bank data show that blended deposit costs had eased from 37 basis points at year-end to 32 basis points in February 2016, but the key one-year term rate is still 75 basis points at PTSB, 30 basis points to 40 basis points at AIB (EBS 55 basis points) and 25 basis points to 45 basis points at Bank of Ireland.

“Indeed, Bank of Ireland’s recent IMS revealed that it was carrying surplus liquidity, making it easier to nudge rates lower.”

PTSB and KBC currently pay among the most attractive rates to savers for deposits held for a year, said Heber O’Farrell, director of financial services at Irish Deposits.

PTSB pays a fixed rate of 0.75%, while KBC has an on-demand account offering savers 0.85% who save a minimum of €100,000 on deposit. The KBC rate increases if the deposit is held for a longer term.

“Generally, deposit rates have fallen significantly over the last 18 months,” said Mr O’Farrell. “Maybe two years ago you could get rates of 2% fixed for a year. With low inflation, and given the risks elsewhere, rates of 2% were quite attractive.”

Mr O’Farrell said, however, that he believed deposit rates here would not fall significantly below the average 0.4% rate because lenders can still use the deposits to help fund high-margin loans.

“Though deposit rates have come back massively they are not going to go to zero or negative in Ireland,” he said.

As lenders face growing political pressure to cut home loan rates, Irish bank shares have had one of their worst runs for some time.

Ahead of releasing its trading update today, PTSB shares fell again on Tuesday, to 229 cent, and have lost half their value since the start of the year.

Shares in Bank of Ireland rose 1 cent to 24 cent yesterday.

Its shares, however, are down almost 30% since the start of the year.


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