Mr. Brian Hayes:

I thank the Cathaoirleach and members. I am joined by Mr. Ali Ugur, our chief economist and head of prudential regulation. I wish to recognise the work of the committee before the summer recess in investigating what we, as a banking and payments sector, are doing along with public authorities to keep customers safe from financial crime and fraud. We welcome the report of the committee, await it with interest and stand ready to engage further with the committee on this important topic.

In the past 14 months, the ECB has increased core interest rates across the eurozone from 0% to 4.5%. This has resulted in a sudden departure from the lower-for-longer interest rate environment. This changed interest rate environment has had a significant impact across the economy, placing many households under greater financial pressure. At the same time, notwithstanding the wider market slowdown in mortgage approval activity, first-time buyer activity remained strong. In the 12 months to July 2023, there were nearly 30,000 first-time buyer mortgages approvals, representing approximately €8.4 billion, the highest annualised level since the data series began in 2011.

The BPFI and its members are acutely aware of the cost of living and interest rate pressures with which households currently have to contend. This is clear from the balanced approach that lenders have sought to take in the past 14 months in the pass through of rising rates. Although there has been much comment regarding savings and deposit rates, this must be looked at alongside the fact that banks in Ireland have been considerably slower than their European peers in passing on interest rates to mortgage holders. In fact, when comparing the pass through of rates across the 20 eurozone member states, Irish banks passed through the second-lowest increase in mortgage interest rates between May 2022 and July 2023. Although the ECB has raised interest rates by 4.5%, the average rate on new mortgages in Ireland has only risen by 1.24%, or less than one third of the full ECB increase. At the end of June 2023, the weighted average interest rate on all outstanding mortgage loans was 3.4% for banks, 2.8% for lending non-banks and 4.9% for non-lending non-banks. It should be noted that approximately 60% of all mortgage loans across the system are currently insulated from rate rises as they are on fixed rates.

Bank profitability is a key driver for capital strength, financial stability and resilient financial intermediation. Organic profits are the first line of defence against shocks to the economy. In addition, banks’ ability to raise capital when needed depends on their profitability. In the post EU banking union reforms, capital stacks, encompassing core EU-wide and local capital add-ons has fundamentally altered the traditional banking model in Europe. Without capital, there is no lending. Without lending, there is no investment for households, businesses and customers across the system.

It is true that bank profits will be higher this year than they were in the past, but banking, as is the case in the economy, is cyclical and, of course, profitability is also linked to economic activity and the demand for new lending, which is also impacted by monetary policy. The real test of profitability is the return on capital, something that has been a real challenge for the sector in Ireland and across the EU for the past decade.

Recent data from the Central Bank show that the number of private dwelling house mortgage accounts in arrears more than 90 days fell by 8.2% to June 2023, driven by a decline in long-term arrears. At the end of June 2023, approximately 30,000 accounts, or 4.1% of the total number of accounts, were in arrears of more than 90 days. This figure is largely unchanged since the first quarter of this year. There has been a slight yearly increase, of approximately 3,000 accounts, in the number of mortgages in arrears up to 90 days, or what we call pre-arrears. Notwithstanding the cost-of-living pressures and environment, these figures highlight the critical role of the macroprudential rules in establishing better lending and better borrowing across the Irish mortgage book in recent years.

In the past six months, BPFI, on behalf of the industry, has announced a series of new customer support measures. These include the recent agreement by lenders of minimum initial eligibility criteria to provide clear guidance and guidelines for customers of credit servicing firms who may wish to switch their mortgage.

In support of this, the three retail banks have put in place dedicated phone lines for these customers who wish to better understand and discuss their options for switching. While it is important to acknowledge that not all customers will be eligible to switch due to their individual circumstances, this development provides a pathway for customers by providing clarity on the question of switching. We have also recently put in place an industry-wide agreement between credit servicing firms and the Money Advice & Budgeting Service, MABS, on how to help customers in financial difficulty.

These measures have formed part of the industry’s Dealing With Debt campaign, which has been developed to highlight and inform customers of the broad range of supports that are available. Solutions can and will be found and it is critical that anyone who find themselves in difficulty engages with their lender as early as possible to find a solution, which they are entitled to look for according to the existing codes from the Central Bank, which are operated by all our members. Irish banks and non-banks have the widest set of solutions available to mortgage customers in difficulty across Europe and have been involved in restructuring more than 100,000 mortgages in the past ten years. They have highly experienced teams who work closely with customers who may find themselves in difficulty and are looking for a sustainable solution. The latest Central Bank figures show that as of June 2023 nearly 62,000 home mortgages were in a restructuring arrangement by the end of last year and more than 85% of these restructures are meeting the terms of their current agreements.

The committee has also asked us to address the matter of the defective blocks redress scheme. We, along with our members, have on several occasions met representatives of the Redress Focus Group for Banking and Insurance to discuss what the sector, and members individually, can do to assist homeowners. Over the summer months we submitted a request to the Minister for Housing, Local Government and Heritage to establish a committee tasked with overseeing the implementation and roll-out of the defective block scheme. We are pleased to confirm this has been agreed to by the Minister and Government. Last week in our office, two members of the committee, Deputies Doherty and Conway-Walsh, attended a briefing for Oireachtas Members on the work we have done thus far. On the defective blocks scheme itself, during our engagement with the redress group, it has become abundantly clear there is a need for finance for some homeowners to commence remediation work on their properties prior to accessing the funding available under the scheme. As a result, BPFI and our member banks have submitted a proposal to the Department of Housing, Local Government and Heritage and we are engaging with it to find a solution that can work for affected homeowners.

The decision of Ulster Bank and KBC to withdraw from the Irish retail market clearly provided a real challenge to the sector in terms of account opening and closing and this is something we discussed last year at the committee. In the 18 months to the end of June 2023, the three remaining banks have opened 1.3 million current and deposit accounts, including almost 800,000 household current accounts and 105,000 business current accounts. Those on the front line of Irish retail banking, be they in call centres, branches or online, can take pride in having delivered for the customer in what was a mammoth undertaking. Two weeks ago, the Department of Finance's Consumer Sentiment Banking Survey August 2023 showed 82% of customers are overall satisfied with their financial provider. That is a figure BPFI members strive to improve on as they build competitive, sustainable businesses and support customers, the economy and our society.