Bankers are from Mars and politicians are from Venus

Bankers should stop pretending they are nice. And politicians should stop trying to have it every way. The latest Oireachtas committee appearing by Bank of Ireland boss Richie Boucher shows that bankers are from Mars and politicians are from Venus – and there really isn’t any point trying to bridge the gap.

Even Boucher, the most hard-bitten of the bank bosses, felt the need to talk about how he sat in on difficult calls with customers, and how he had personal experience of people who had lost businesses. This was in response to questions from the members of the finance committee – including chairman John McGuinness – who pointed out that the bank had been bailed out to the tune of €4.8 billion by the taxpayer and was still pursuing borrowers to get its money back.

That is what banks do, of course, and there was little point in Boucher trying to play the empathy card, particularly when he earns north of €800,000 a year. Bank of Ireland is now a private business with the State retaining a small shareholding. The decision was made to recoup the State’s money by selling the shares. Wilbur Ross – who could be Donald Trump’s commerce secretary – and his associates made a load of cash out of this, buying a large stake and then selling it on.

So don’t expect Bank of Ireland to act in any other way than a private business. Politicians should probe it on how it interacts with the official machinery meant to help people in debt, and the Central Bank rules on how it deals with people. But despite Boucher’s protestations to the contrary, it is not going to go beyond its legal and regulatory obligations. If you owe it money, it will seek to collect it.

And if you are making your repayments, your interest rate may well be high. Finance committee member, Fianna Fáil’s Michael McGrath, gave Boucher a bit of a hard time about the high level of the bank’s standard variable mortgage rate. And he was right to do so. Bank of Ireland’s rate is an eye-watering 4.5 per cent.

With the other banks moving their rates down well below 3.5 per cent, Boucher must have known this attack was coming. His defence was that he is trying to push borrowers on to fixed interest rate products, generally offered at lower rates. Every one of its variable rate customers could make money by switching to a fixed rate product, he said, locking in their repayments for a fixed period of up to 10 years.

Of course this also locks in profits for the bank, for whom funding now is exceptionally cheap in a low interest rate environment. Whether these fixed rates will prove good value for customers is a tough call. Interest rates do look set to rise a bit, but by how much – and how quickly – is anyone’s guess. For the bank, with funding already in place, it will be a case of “winner all right”.

Disconnect

But let’s not be too hard on the bankers. There is one glaring disconnect in the debate – one that makes both the bankers and the politicians uncomfortable. One of the reasons why mortgage interest rates are high here is that it is such a long, costly and complicated process for banks to repossess properties from a borrower who is not paying. It is one of the reasons why the Irish market is different from many other markets – and why average rates for new borrowers here are still over 3 per cent, while they are below 2 per cent elsewhere in Europe, on average.

Yet this is tricky territory for the politicians, who want to have it both ways – calling for people to be left in their homes, while simultaneously calling for lower mortgage rates. It would be an issue worth exploring at an Oireachtas committee, to see where there ways to expedite the process to the benefit of both the borrower and the lender.

And it would also be worth discussing the development of genuinely long-term, competitively priced mortgage products – typical in other euro zone markets – in Ireland. In the Netherlands, for example, two-thirds of new mortgages are fixed for between 11 and 20 years, as borrowers look to take advantage of low current rates. Could similar products not be developed here to the benefit of both the lender and the borrower?