For the first time in almost a decade there are signs that our banking system is getting back to normal, beginning to operate within proper parameters and finally lending to businesses, home buyers, and other credit worthy customers.
The first of these was a stage-managed affair yesterday by Finance Minister Michael Noonan, but nonetheless welcome for that. Mr Noonan and Public Expenditure and Reform Minister Brendan Howlin met Wolfgang Schaeuble, the German finance minister, and Werner Hoyer, the head of the European Investment Bank, for a signing ceremony to an agreement that will put money into the State’s new strategic investment bank.
The agreement will make it easier for smaller businesses to get low-interest loans. The new Strategic Banking Corporation of Ireland is getting €150m from the German state bank, KfW, and a similar amount from the European Investment Bank. The Government is supplying an initial sum of €500m. From December, loans will be available to SMEs through Bank of Ireland and AIB. The most vital element is that those loans will be accessible on more flexible terms than currently available from commercial banks.
That is very important in particular for seasonal businesses such as farming, fishing, and tourism but will also be welcomed by the wider business community which has met intransigence from bankers over the past few years. A more telling indication of normalisation, though, is the decision by the State-owned AIB to cut mortgage rates by up to 0.25% from the start of December. It is the first time variable rates have been cut in years, despite the ECB rate being cut twice this year alone. The standard variable and loan-to-value rate reductions will apply to mortgages from within the AIB group, including EBS and Haven, and will be available to new and existing customers.
The bank has said the change would affect 146,000 existing mortgage account holders but it could be far more than that if, as expected, rival banks follow suit. In the region of 320,000 householders are on variable mortgages, most of them forced by lending institutions to effectively subsidise people who enjoy tracker rates. The difference they pay is extraordinary. Tracker mortgage rates are now as low as 0.6% while the new AIB rate will still be 4.15%. That means that homeowners on an average mortgage €200,000, will still pay €350 a month more than those on trackers.
The banks have been milking variable rate customers for years and it is about time they got a break. A third sign of normalisation returning to the banking industry is the news that the level of defaulted loans at Bank of Ireland continues to fall. According to an interim management statement by the bank, customer deposits and new lending are also continuing to increase. The bank puts this improvement down to better conditions in the Irish and British economies as well as the work being done by Bank of Ireland with its customers. Whatever the reason, all three developments yesterday suggest we may be approaching a time when the word ‘banker’ will no longer be a substitute for a well-known expletive.
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