The chief executive of AIB David Duffy and other senior executives at the bank were grilled for more than two hours by the Oireachtas Finance Committee.
Mr Duffy was pushed to explain why the bank's Standard Variable Rates (SVR) remained 4 per cent higher than the base rates charged by the European Central Bank (ECB) forcing over 140,000 of its customers to pay hundreds of euro more in mortgage repayments than those with the same amount of money borrowed under a tracker mortgage.
Independent TD Stephen Donnelly asked Mr Duffy to explain why its SVR was 3.5 per cent in 2012 when the economy was in a perilous state and 4.1 per cent now when things have improved considerably.
Mr Donnelly said ECB rates had fallen 0.7 per cent in the interval and the level of risk had fallen as had the cost of wholesale funding. He asked if the reason SVRs remained high was to increase shareholder profits.
This suggestion was rejected by Mr Duffy who did more than hint that almost 150,000 AIB customers with Standard Variable Rate mortgages are in line for a rate cut within weeks.
Anticipating questions about its high rates, Mr Duffy started out by saying that if market conditions and the bank’s costs of funding continue to improve over the next month or two - as is widely anticipated - then it will be in a position to cut its SVR rates.
He said funding costs and the risks associated with the loans had fallen over the first part of this year and operational changes had lowered the day to day running costs of the bank. “If we see that trend continuing over the next couple of months we will make a rate cut,” he said.
Mr Duffy denied that AIB had been profit taking from its SVR customers in recent years and said historically low ECB rates painted a misleading picture of the bank’s costs as it only supplied 3 per cent of its funding.
“There is a narrative that AIB funds itself at the ECB rate, that is simply not the case,” he said. He said AIB’s net profit margin was 1.61 per cent which was “below the level across the euro-zone”.
On arrears and the potential for home repossessions, he said the bank always tried to keep customers in their homes “if the customers engage with us” and he said the bank had adopted “a very pragmatic approach to residual debt”.
Fine Gael’s Kieran O’Donnell asked for Mr Duffy’s view on a possible change in the bankruptcy legislation which would see the term fall from its current three years to 12 months. “I don’t see any problem from the bank’s perspective with a reduction of the term,” Mr Duffy said.
Fianna Fáil Spokesperson on Finance Michael McGrath welcomed the "strong indication" from Mr Duffy that the bank could reduce its SVR's "within the next month or two".
He said the SVRs being charged by banks in Ireland on around 300,000 customers were "completely unjustifiable. With falling cost of funds and rapidly rising net interest margins, the banks are extracting more and more profits from variable rate customer," he said.
He called on AIB to ensure Mr Duffy’s comments were “quickly backed up by a significant variable rate cut from the bank.
The pressure is now likely to fall on Bank of Ireland and Permanent TSB who charge SVRs of 4.5 per cent to their existing customers.