Mr. David Duffy:

I will ask Mr. Mark Bourke to provide a build-up and help Deputy McGrath see through how we build our costs and ultimately how we charge for the rates. I will provide some context for Mr. Bourke. To put this in simple business terms, the way we look at this as a business is that one has a cost of risk. Even in good times, one has mortgages that do not work and different kinds of loan defaults. One then has the running costs to the bank and the costs of the funds one acquires. These three costs need to be considered when one tunes to one's total cost. That is normal business. The bank then charges a rate for its product. If one looks across Allied Irish Banks, we have those three costs. As I stated, the European Central Bank rate is simply not relevant because we only source 3% of funding from the ECB. When we add up the three costs to which I referred and then look at the rates across all our products, we arrive at a figure of 1.6% for the net interest margin, which is at the lower end of the average among our peers.

I want to provide context by stating that we are not trying to get to the point of making tremendous profits for a shareholder valuation. We are looking for sustainable profitability and wish to be fair. As was the case with the previous cut, if these costs come down, we will try to contribute by giving a rate cut to our mortgage customers.

Mr. Bourke will provide the science of how this builds up to provide some clarity for the Deputy.