Foreign banks could be more forgiving

FOREIGN banks entering the Irish market may be more willing to cut a deal with mortgage holders as they look to reduce their loan books.

They are also unlikely to make many drastic changes to day to day banking as they will want a smooth transition into the Irish market.

CEO of the Irish Brokers Association Ciaran Phelan said the key difference for the existing mortgage holder is that a change in ownership would probably bring about a great willingness from the lender to cut a deal.

“Invariably, the loan book will have been discounted in some way when the bank was taken over, due to current and expected arrears as well as the long-term cost of trackers mortgage,” he said.

Director of the Irish Mortgage Corporation Frank Conway said he expects that any lender entering the market for the first time would want that entry to be a smooth one.

“So, absent any get-out-of-jail cards on mortgages that our own lenders could exercise prior to being sold, it is highly unlikely that new entrants would want to engage in such a messy piece of work.”

Mr Conway said, if foreign banks such as Santander or HSBC were to come into Ireland and take over the portfolios of the Irish banks, they would be unable to change the mortgage contracts unless those contracts had some in-built provision that would permit them to do so.

He said some banks may have “special conditions” built into contracts that would allow new owners to change terms and it is up to each customer to check with their bank the terms and conditions of their contract.

However, while the Financial Regulator has been firm in his calls to banks that lenders should not force mortgage holders off their tracker deals.

“I do not believe that lenders could be prevented from exercising the ‘if conditions warranted’ clause in contracts,” said Mr Conway.

He believes that any lender entering the Irish market would have a “fundamental problem” with the number of loss-making tracker mortgages lenders have on their books.

Mr Phelan said there is potential for customers to gain some benefit from new entrants to the market.

Q&A

Q. What happens to my mortgage?

A. A spokeswoman from the Irish Banking Federation (IBF) said the terms and conditions signed by a bank customer with the original bank will remain in place should a bank be taken over. With new customers, however, any business will depend on the terms offered by the new bank.

However, some contracts may contain “special conditions” that would permit a bank to change certain conditions. It is not known how many contracts contain such a clause but customers can ask a bank directly if they would be affected.

For those who have opted for fixed rates on their mortgage they will not have them removed if their original bank is taken over. Contracts will remain in place.

Q. What happens to my bank shares?

A. Shareholders must vote on any takeover at an EGM and before a takeover is finalised the shareholders will be made an offer by the new bank for their shares. It is up to them then to accept this offer.

Q. Are my bank deposits safe?

A. Bank deposits of up to €100,000 are guaranteed and backed up by the EU. Dr Stephen Kinsella, a lecturer in economics at the University of Limerick said unless the EU collapses, “which is not going to happen“, people’s deposits below this range are safe within the bank. “Many people have expressed their fears about the deposits, and the truth is their deposits are safe because the EU has guaranteed that,” said Dr Kinsella.

Q. Are foreign banks interested in investing in Irish banks?

A. According to former taoiseach John Bruton, international banks are definitely interested in investing in the Irish banking system. He said he has had extensive contact with the international financial community since he became chairman of IFSC Ireland in September.

Central Bank governor Patrick Honohan also favours investment by foreign banks in the Irish banking system. Mr Honohan said he is “relaxed” about the idea of foreign investors taking control of Ireland’s largest banks.

Q. What should I do now?

A. Talk to your bank. Ask for a copy of your mortgage contract and read over the small print.