AIB and BoI ‘rip off’ variable rate customers

The country’s two pillar banks have been accused of basing their recovery on the back of hard-pressed mortgage customers in what has been termed a “blatant rip-off”.

Variable rate mortgage customers are being taken advantage of by AIB and Bank of Ireland in a bid to increase profitability, according to Fianna Fáil finance spokesperson Michael McGrath.

The Government and Central Bank are under pressure to exert greater influence on lenders to ease the burden of mortgage repayments for variable rate customers.

Pressure has intensified in the wake of recent ECB interest cuts which have seen rates fall to the lowest ever level — the benefit of which borrowers are yet to see.

Finance Minister Michael Noonan told the Dáil last week that he would ask Central Bank governor Patrick Honohan to consider what influence he and the bank could bring to bear on situation.

Similarly, Taoiseach Enda Kenny said he expected the banks “to treat the Irish people with a degree of understanding and pass on interest rate reductions to the consumer”.

Hundreds of thousands of Irish customers are saddled with variable rates of up to 4.5% — a rate far in excess of that elsewhere in Europe.

Consequently, some 300,000 mortgage holders are paying up to €3,300 a year more than borrowers across the eurozone.

The reversal of fortunes for AIB and Bank of Ireland, which saw both pillar banks report profits earlier this year for the first time since the financial crash, is built on the back of variable rate customers, according to Mr McGrath.

“In its most recent annual report, Bank of Ireland clearly states that its profitability is being driven by ‘substantial progress on re-pricing loans’. This is banker speak for ripping off variable rate customers

“Bank of Ireland’s net interest margin increased by a whopping 23% in 2014 to 2.13% from 1.75% in 2013. In 2012 it was 1.10%. It also boasts it expects its net interest margin to grow further.

“It is a similar story with AIB which increased its net interest margin in 2014 to 1.69% from 1.37% in 2013 and 1.22% in 2012.

“The margin being earned in variable rate mortgages is of course much higher than these blended figures. With variable interest rates for existing customers typically between 4% and 4.5% and the cost of funds for the banks as low as 1%, massive profits are being achieved on the backs of variable rate customers,” said Mr McGrath.

It is clear, he added, that variable rate customers are being “dramatically overcharged by the banks”.

The Fianna Fáil TD also said with an outstanding balance of €40.6bn owing on standard variable rate mortgages in Ireland, €406m is taken out of families’ pockets and the domestic economy with every 1% rate increase.

Mr McGrath called on the finance minister and Central Bank governor to “flex their muscles” and end what he referred to as the blatant rip-off of customers.

An AIB spokesperson said the majority of the increase in its net interest margin — the rate charged over and above a bank’s cost of funds — was as a result of the group’s lower funding costs.

AIB, EBS and Haven reduced variable rates in December 2014 for new and existing mortgage customers, the spokesperson added.

Bank of Ireland, meanwhile, said all rates are reviewed on an ongoing basis.

Peter O Dwyer