AIB says it doesn’t cut mortgage rates at Government’s ‘whim’

Joe Brennan

AIB chief executive Bernard Byrne has insisted the State-owned bank doesn't cave to political pressure to lower mortgage rates.

AIB has led the market in cutting home loan costs in the past year and a half. However speaking to reporters after AIB's annual general meeting on Tuesday, Mr Byrne said it wasn't coerced by Finance Minister Michael Noonan or other political forces when it announced a standard variable rate cut earlier this month.

“We can’t operate the bank at the whim of an ownership construct that is politically influenced, because that would destroy our ability to raise capital,” Mr Byrne said. “We have to run the bank independently. It’s enshrined in our relationship agreement [with the government].”

The comments come as Mr Byrne seeks to raise investor interest in the bank ahead of the government starting to sell down its 99.8 per cent stake, now expected in 2017. AIB said in a trading update that its profitability was “strong” in the first quarter as bad loans fell, paving the way for it to repay a further €1.6 billion of taxpayer aid in July.

AIB’s most recent SVR cut marked its fourth 0.25 percentage point reduction since late 2014, and Mr Noonan said last week that he expected the bank to move again on its SVR rate again “fairly soon.” The political heat on the issue dialled up a notch last week when the government decided not to challenge a Fianna Fail Private Members bill that would give the central bank the power to regulate rates.

Even with the announced rate cut, AIB said it is on track to further expand its net interest margin, the difference between the average rates at which it funds itself and lends on to customers, this year. The margin widened to 2.09 per cent in the first quarter from 1.97 per cent for 2015.

This will be driven as the bank's redeems €1.6 billion of high-cost contingent convertible bonds sold to the State at the height of the crisis and National Asset Management Agency continues to repay low-yielding bonds used to pay lenders for toxic commercial property loans in 2010.

AIB, which received a € 20.8 billion taxpayer bailout during the financial crisis, has only repaid about €1.7 billion of capital to date, when it repurchased some of the State’s preference shares in the bank in December.

Adding in the planned July payback as well as interest and coupons on bailout securities, bank guarantee fees and levies since the onset of the crisis, it will have returned €6.5 billion of cash to taxpayers.

Meanwhile, AIB has sought to draw a line under a whistleblower allegation, which emerged last month, that it has overplayed progress on resolving soured loans.

“When we hear things like that, we look, we check,” Mr Byrne told reporters. “As far as we can see, there is nothing to see.”

Earlier, the bank's chairman Richard Pym told the AGM the bank's management "comprehensively reviewed" its reporting on non-performing loans and provisions, after the anonymous whistleblower claimed to regulators that AIB had dressed up progress on distressed loans to flatter its performance.

“We are entirely satisfied that the accounts are accurate,” Mr Pym said.