Banks’ profitability based on ripping off variable rate customers – McGrath

Published on: 05 April 2015


Fianna Fáil Finance Spokesperson Michael McGrath has highlighted how the Irish banks’ annual reports demonstrate the extent to which their improved profitability is based on ripping off existing standard variable rate mortgage customers.

Deputy McGrath commented, “I have undertaken an examination of the net interest margin of the pillar banks – Bank of Ireland and AIB – over the last 3 years. The net interest margin measures the interest rate they are charging on loans over and above the banks’ cost of funds. This has coincided with the period in which the ECB has been cutting rates to their lowest level ever and banks have been increasing the rates they charge. It is clear that widening net interest margin is being driven in large part by increases in the margin the banks are making from an effectively captive group of customers – variable rate customers.

“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 that 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. The total balance owing on standard variable mortgages in Ireland is €40.6bn, according to Central Bank data. This means that for every 1% of additional interest heaped on variable rate mortgage customers, there is an additional €406m taking out of family budgets and the domestic economy to boost the profitability of banks.

“We all want the banks restored to a sound financial footing and this will involve charging interest rates appropriate to the products they are selling. However, it is now clear that variable rate customers are being dramatically overcharged by the banks. This is unjustifiable and must not be allowed to continue. The Minister for Finance and the Central Bank governor now need to flex their muscles and end this blatant rip-off,” concluded Deputy McGrath.

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