Oireachtas Joint and Select Committees
Thursday, 21 September 2017
Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach
Banking Sector in Ireland: Bank of Ireland
9:30 am
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I welcome Mr. Liam McLoughlin, chief executive officer of the Retail Ireland division of Bank of Ireland. I also welcome his officials. I draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.
Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.
Mr. Liam McLoughlin:
I thank the committee for the invitation to attend this meeting today. I will first introduce the delegation from Bank of Ireland. I am the chief executive of the Retail Ireland division of Bank of Ireland Group. Joining me today are Mr. Stephen Mason, head of group customer operations at Bank of Ireland, and Mr. Pat Farrell, head of group communications and government relations. A presentation has been circulated in advance to members of the committee and I do not propose to go through every slide in detail in these opening remarks, rather I will reference a number of slides and during our discussion this morning and may refer to additional information contained within the presentation. We have also returned to the committee the answers to a range of questions sent to the bank in advance.
I would like to briefly reference the requirements that Bank of Ireland must observe as a public company, quoted on the Dublin and London Stock Exchanges. Bank of Ireland makes extensive disclosures to all shareholders annually through our financial statements and associated presentations and other material statements during our financial year. All statements made and information provided in this public forum are considered to be market information which is disclosed to all stakeholders at the same time. We are obliged to note that any comment we make regarding the potential future performance of the bank should not be considered forward guidance and does not represent a solicitation to purchase stock in the bank.
Turning to our presentation, the executive summary from slide 4 to slide 7 sets out the key highlights of the Bank of Ireland Group's performance for the first six months of 2017. Slide 4sets out that Bank of Ireland is the largest lender to the Irish economy, lending €3.4 billion in that six month period, with growing market shares in business banking and residential mortgages. This slide also sets out that we continue to see positive trends regarding asset quality. We provide more granular detail on this in section 7 on mortgage arrears. Slides 5 and 6shows the scale and scope of Bank of Ireland's operations in Ireland, the UK and internationally. On slide 5, members will see that Bank of Ireland has a comprehensive multichannel distribution platform, including Ireland's largest branch network. In Ireland, the bank has market leading positions across the consumer banking, wealth management, business banking and corporate banking markets. On slide 6, members will see some detail on our international businesses, including partnerships in the United Kingdom with Post Office and the AA, two of the leading consumer brands in the provision of financial services in that market. We have also detailed on slide 7 the work under way to transform how we meet the evolving needs of our customers, including delivering digital capability to meet changing customer behaviour and preferences.
Turning to our recent interim results for the first six months of 2017, slide 9 sets out that Bank of Ireland delivered an underlying profit of €480 million during this time period, with group new lending of €6.6 billion. As members will see on slide 10, some 70% of total income is drawn from Ireland, with the remaining 30% coming from United Kingdom and international operations. Slides 11 to 15set out more detail and further information on our recent interim results. Slide 15details that Bank of Ireland received an investment of €4.8 billion from the taxpayer. The bank has repaid that in full, returning in excess of €6 billion to the taxpayer. The State does not have any exposure to Bank of Ireland under the ELG scheme.
Slides 17 to 24detail the bank’s role in communities and our support for enterprise and innovation nationwide. Bank of Ireland is the largest lender to the economy and has maintained a strong country-wide presence with 250 branches nationally. In addition to this community presence, the bank has an extremely active enterprise development programme which is delivered through our retail bank branch network. Twice a year, in May and November, Bank of Ireland organises a national enterprise week during which a range of activities focused on supporting SMEs and start-ups takes place. Most of these events take place in local branches where small businesses are invited to showcase their business, advertise their product or service and meet new and existing customers. In addition, Bank of Ireland will host more than 130 enterprise-town events nationally in 2017 alone. Enterprise-town events usually take place over two days and see local businesses and sports, social and charitable organisations hosting a major community event which is open to the public. The events allow each town to showcase all it has to offer, support the local economy, connect businesses and raise the visibility of what is happening locally and the potential opportunities for business development. In the first six months of this year, 5,000 exhibitors took part in Bank of Ireland enterprise events.
Bank of Ireland has also pioneered the use of our branches to support start-up companies and entrepreneurs by offering free working space called "workbenches". As set out on slide 20, Bank of Ireland now offers workbench space in Dublin, Cork, Limerick and Galway with partner spaces in Wexford, Waterford, Cork, Kerry and Dublin. Bank of Ireland has also developed Startlab, a start-up incubator based in Dublin and Galway. Startlab is designed to incubate high-potential tech start-ups to help them scale rapidly. We also offer space to Irish companies that want to break into the American market from our offices in New York. I note also the work we do with customers and members of the public to support them in their use of new technology, whether that be computers, the Internet, or smart phones. Bank of Ireland has a team of advisers, called "digital arrows", whose role is to bring digital training, support and knowledge to community groups and customers across Ireland. Our digital arrows engage with active retirement groups, transition year students, business customers, farmers, and community groups to offer practical guidance on how to use new technology in a range of ways from communicating with relatives abroad to shopping online and using digital channels for banking. In 2016, our digital arrows provided training to more than 30,000 members of the public.
Slides 29 to 32set out detail in respect of Bank of Ireland's mortgage book, market share, approach to pricing and the fixed rate offers available to all new and existing owner-occupier customers. As detailed on slide 31, the bank keeps the pricing of all of its products under active review. Products, including mortgages, are priced to reflect the cost of funds to the group, the estimated potential loan losses from the portfolio, recovering our costs including our staff and infrastructure costs, the capital required to support the products, the provision of incentives to customers to reduce risk for themselves and the bank, and to ensure that we are competitive in the market place. The bank offers attractive fixed-rate mortgages which mitigate risk for both the customer and the bank. At each LTV band, there is an attractive fixed rate available to both new and existing customers. Over the past two years we have seen a significant shift towards fixed rates. Of total new lending volumes of €800 million in the first six months of this year, fixed rate products account for 88% of the total. This is up from 75% in 2016 and 30% in 2015. Our fixed-rate mortgage strategy provides value certainty and stability to our customers and to the group and we consequently see this strategy delivering a considerable benefit to both.
From slide 34 to 42, we have provided an update on asset quality and mortgage arrears. Slide 33 sets out that nine out of ten owner-occupier customers are fully up to date on their mortgage; nine out of ten owner-occupier customers who requested forbearance, and through an SFS demonstrated they were in financial difficulty, were offered a sustainable solution; and nine out of ten owner-occupier customers are meeting the terms of their forbearance arrangement. All our activities in our approach to mortgage arrears recognise the fundamental importance of the family home.
Significant progress continues to be made. Slide 35 details that at June 2017 owner-occupier accounts in arrears had reduced by 60% from peak levels in May 2013. At June 2017 2.5% of Bank of Ireland owner-occupier accounts were greater than 90 days in arrears compared to a rest of industry average of 8.3%. Bank of Ireland mortgages greater than 720 days in arrears have also continued to reduce, falling to 1.4% in quarter two 2017 compared to the rest of industry average of 5.2%.
On slide 42 we highlight that we provided 26% of the new owner-occupier mortgage loans in the country in H1 this year. We had 22% of the stock of mortgages in the country, up from 18% of the stock in 2008, but only 8% of the stock of mortgages in arrears and 6% of the owner-occupier mortgages greater than two years in arrears.
To conclude these opening remarks, Bank of Ireland is Ireland’s largest lender, and the number one bank for Irish businesses. It operates the largest branch network of any bank in Ireland, with 250 branches nationwide, and is increasingly using this branch footprint to support start-up companies and entrepreneurs. It is responding strongly to the changes in how our customers are choosing to bank, and their demand for 24 hours per day, seven days a week services. It has the most comprehensive banking enterprise programme in Ireland, with national enterprise weeks and enterprise town programmes designed to help companies grow and succeed.
Thank you for your attention this morning. My colleagues and I look forward to members' questions.
Pearse Doherty (Donegal, Sinn Fein)
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We had a discussion at the last meeting of the committee about Bank of Ireland's policy of encouraging their customers to fix their interest rates. Let us look at the issue of variable interest rates. What is Bank of Ireland's variable interest rates for a loan to value in excess of 80%? Can the witness also inform the committee of AIB's interest rate for the same product?
Pearse Doherty (Donegal, Sinn Fein)
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The witness is head of retail banking.
Pearse Doherty (Donegal, Sinn Fein)
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And he is not aware of the interest rates of his bank's main competitors?
Pearse Doherty (Donegal, Sinn Fein)
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The witness is head of retail for Bank of Ireland and he is asking this committee to believe that he is unaware of AIB's interest rates.
Pearse Doherty (Donegal, Sinn Fein)
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It is significantly lower than Bank of Ireland. Bank of Ireland is probably the outlier in the industry in terms of loan to value rates. Is that correct?
Pearse Doherty (Donegal, Sinn Fein)
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Which financial institution would have a higher rate?
Pearse Doherty (Donegal, Sinn Fein)
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For anyone out there who is being charged a 4.5% interest rate by Bank of Ireland at a time when the Central Bank's interest rates are at an all-time low, can the witness explain how much it costs Bank of Ireland to actually borrow that money for which the 4.5% is charged?
Mr. Liam McLoughlin:
As the Deputy knows there are a range of factors that make up the composition of the cost base to it. The costs are driven by three things. Those are the cost of funds to ourselves - the normal rate for that is 40 or 50 basis points - the cost of operations and the cost of capital. The costs of capital and credit have been increasing over the last number of years, not decreasing, whereas the cost of funds have been decreasing. Bank of Ireland has seen a reduction of about 25 basis points in costs of funds in recent years, and we have passed it on to our fixed rate pricing, which is the promotion of our new mortgage business in Ireland.
Pearse Doherty (Donegal, Sinn Fein)
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Perhaps the witness would answer the question. What is the cost to the bank of those funds?
Mr. Liam McLoughlin:
The cost of funds is 50 basis points. I do not have a basis points cost for the cost of operations. We run a blended business here, end to end, for running our branch services. I do not have a specific cost for the cost of mortgages. In terms of the cost of capital, in Ireland we are required to hold higher levels of capital against our mortgages than we are in other jurisdictions, so the cost for the capital intensity requirement is about 31%. In the UK business, where we have a similar sized mortgage book, it is about 20%. In Scandinavia and other countries it is single digit or low teens. The capital requirement across Europe is very different. The cost of credit, given the arrears profile in Ireland over the last couple of years, is also higher than in other jurisdictions.
Pearse Doherty (Donegal, Sinn Fein)
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Is the witness telling the committee that there is no figure?
Pearse Doherty (Donegal, Sinn Fein)
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What is the blended number?
Pearse Doherty (Donegal, Sinn Fein)
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How can Bank of Ireland justify charging almost double what the EU average is for variable interest rates? Is that not simply gouging the customers?
Mr. Liam McLoughlin:
No. There is no straight comparison versus the EU numbers. The market in Europe is very different from the market in Ireland. We have a similar sized mortgage book in the UK, but it is a very different market. The Irish market is driven principally by an interest rate headline number. In continental Europe and in the UK, where we have a business, arrangement fees are charged up front, which is not a feature of the Irish market. Other costs at play for the Irish market include the cost of credit, given the arrears situation that we have had for the past couple of years, and the costs of capital, which are higher than in other European jurisdictions. These drive different behaviour.
Pearse Doherty (Donegal, Sinn Fein)
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Even in Ireland, Bank of Ireland's main competitor, AIB, has just announced a quarter per cent interest rate reduction. Its variable rates are below 3% for certain products, so even if we take like on like and compare the pillar banks in Ireland Bank of Ireland is way behind AIB on the price of products. How can the witness justify the fact that Bank of Ireland is gouging its customers by that amount?
Pearse Doherty (Donegal, Sinn Fein)
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I will move on to the issue of the number of accounts in arrears. We have seen that there is a significant fall from 2013 to today. It is still not acceptable, in my view, that almost ten years on from the crisis there are still so many in arrears, but we have 4,083 compare with 11,116 in 2013. It says that there are 486 such homes in forbearance and 2,283 in some sort of legal process, including those that have been repossessed. Approximately 4,000 homes that were in arrears over 90 days that are now not in arrears, forbearance or in the courts process. Where are those? What happened to those individuals? Was it a case that they all got out of arrears, or did the bank sell on some of those loans?
Mr. Stephen Mason:
I will take that question. We have seen significant progress over the last number of years on the reduction of mortgage arrears. Arrears of greater than 90 days have reduced significantly. Our overall arrears picture has reduced by 60%, and as we have shown in the presentation that is significantly different to what has happened at industry level. Of the more serious cases, of those which are in arrears of greater than two years, those have reduced by 45% since they peaked. They peaked in October or November 2014.
In the past two and a half years up to June of this year, they have reduced by 45%. We have seen a considerable reduction in numbers. I am trying to remember the Deputy's question.
Pearse Doherty (Donegal, Sinn Fein)
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There is a significant drop in the number of arrears. Some of them are in forbearance; some are in the legal process. The question is: did the bank sell any of those loans on?
Pearse Doherty (Donegal, Sinn Fein)
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None of them has been sold to a third party.
Mr. Stephen Mason:
None of them has been sold. Since this started, we decided we would work our way through this ourselves and that is what we have done over recent years. Not just on an annual basis but on a quarterly basis we are continuing to make significant reductions and we continue to compare favourably with the industry.
Pearse Doherty (Donegal, Sinn Fein)
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Approximately 2,283 family homes are in the legal process, are repossessed or are in voluntary repossession. We can touch on that later. How many vacant properties does Bank of Ireland hold at this point in time, either voluntarily surrendered property or properties that were repossessed on foot of a court order or whatever?
Mr. Stephen Mason:
That would be a very low number. We got our operation together regarding managing mortgage arrears a number of years ago and as properties have come into possession, they have been sold. The number of properties we hold at any given time would be significantly under 100 - I think it is 80 or 90 at this stage. Probably half of those would be on the market and the rest would be getting ready to put on the market. There might be specific planning or other issues with some small number meaning that we just could not put them on the market at the moment. In recent years we have sold more properties than we have taken in.
Pearse Doherty (Donegal, Sinn Fein)
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Note 1 on page 2 states:
To date Bank of Ireland has submitted 319 eligible cases to the Housing Agency since inception. At the end of H1 2017, 57 cases have completed and a further 19 are under contract.
What do those figures mean? How were the 319 eligible cases deemed eligible? Are these all of the houses that were repossessed or voluntarily surrendered? How is that quantified? Does this note mean that only 57 of those have been taken in hand by the Housing Agency? Can Mr. Mason explain that?
Mr. Stephen Mason:
If a mortgage is deemed unsustainable and the customer is co-operating with us, the first thing we do is see if we can make the mortgage-to-rent scheme work. We have been big supporters of the mortgage-to-rent scheme since it was launched. We have given feedback to this committee and others on how it could work better. We have done 59 mortgage-to-rent cases to date - I know the figure in the slide is 57, but we have done two more in the past couple of weeks and so we are up to 59. The last time we appeared before the committee in November 2016 it was 39, so the number is rising. The other banks combined have done a total of 46 mortgage-to-rent cases and we have done 59.
The Deputy asked what is happening with the others. A total of 19 are under contract and a further 30 or 40 are working their way through the process. In 111 cases the customer decided not to proceed. That is obviously the customer's choice. It could have been at an early stage or, as happened in many cases, at the very last hurdle that the customer decides not to proceed, but that is the customer's choice. In about 80 cases an approved housing body would not buy the property.
Pearse Doherty (Donegal, Sinn Fein)
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Are there any indications that those figures will significantly ramp up in the short term? Whether it is 57 or 59, the figures seem pathetically low in the context of the scale of the crisis we have. Is there any indication that some of the obstacles - be they at the door of the bank, housing agencies or whoever - are about to be resolved?
Mr. Stephen Mason:
Yes, there are. There has been significant interaction. We sit on the BPFI mortgage-to-rent working group which interacts closely with the Housing Agency. There have been recent changes in what can happen in a mortgage-to-rent case. For example, people with modest positive equity can now apply. In the past people with one or two spare rooms could not have applied. If the property was too big it was not deemed eligible. That criterion has changed of late. A number of parameters have changed, which should help the number increase. We hope that will happen over the coming months.
Pearse Doherty (Donegal, Sinn Fein)
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Obviously the bank does its own internal research of the housing sector. Does it expect to see house prices continue to increase and if so at what rate? What impact will that have on new mortgages for PDHs?
Mr. Liam McLoughlin:
The consensus is that the numbers, particularly in the Dublin area are rising by approximately 10% to 12% in the current year. As the Deputy is aware, there is a significant supply shortage. In a market like this where there is significant demand, employment numbers rising, new jobs being created particularly in the urban areas, house prices will continue to rise until the supply issue is fully addressed. The numbers vary widely with 25,000 to 35,000 housing units required per year. More recent numbers indicate it is at the upper end and that number is under pressure. Completions last year were around 14,900, heading to 17,500. A number of those completions appear to be in non-urban areas and are self-builds. Therefore, the gap is quite significant and that will continue to put pressure on pricing.
Pearse Doherty (Donegal, Sinn Fein)
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Does the bank have an internal number it uses for expected price increases for next year?
Pearse Doherty (Donegal, Sinn Fein)
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We are aware of the bank's share of the mortgage market. Is the bank increasing funding to developers who will build the houses to be bought eventually by the principal dwellers? Has the bank seen a significant pipeline of lending to developers? What is the trend?
Mr. Liam McLoughlin:
Yes, we have seen a pickup in appetite. Given the low supply, demand has become more pronounced. The bank has a development fund to support residential properties. We have doubled that fund in the past six months to support the increase in appetite and demand we are seeing in residential building.
Pearse Doherty (Donegal, Sinn Fein)
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The bank has decided to withdraw its services from branches in many small towns and urban areas. It has gone cashless in many of its facilities. The committee welcomes that the bank has taken a different decision from AIB and Ulster Bank, in not closing its physical premises. However, it offers no currency exchange. People can no longer lodge coins or withdraw cash from across the counter. Basically there is no longer any counter in many of Bank of Ireland's branches. This seems to have been done without consultation with the general public who are very annoyed about it as we hear in our constituencies. There seems to be a drip-drip process of withdrawing services from its customers who have made the bank extremely profitable. I believe Bank of Ireland recorded €1 billion in profits last year. The response from the customers who provide profits and pay salaries is to withdraw those services. Some of those individuals are very vulnerable.
On top of that the bank has decided to install machines that do not provide for our national language to be used despite a very bold and good decision the bank took 15 years ago to provide services through the Irish language. With a new CEO coming into the bank, is there any chance that it will take a different attitude to services in communities so that people can withdraw cash, go in and talk to somebody behind the counter, lodge coins, get currency exchange or whatever, which people see as traditional methods of banking? When Bank of Ireland upgrades its internal models, which I understand will happen next year with a new ICT programme, will it consider allowing for the Irish language in its ATMs?
Mr. Liam McLoughlin:
We have the largest branch footprint and as the Deputy has rightly said, we have not closed any branches for at least six years and probably longer. No Bank of Ireland branch is cashless.
The bank has made an investment in response to customer demand. Where cash was available over the counter for six hours a day, we have converted that to a 24 hour a day, seven day a week facility through lodgement ATMs. This is a significant investment in technology. We have invested in excess of €10 million per year for the past five years in lodgement ATMs.
Pearse Doherty (Donegal, Sinn Fein)
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If I walk into my branch in Bunbeg, I cannot get cash.
Pearse Doherty (Donegal, Sinn Fein)
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That is outside the branch.
Pearse Doherty (Donegal, Sinn Fein)
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We can use all the spin we want but when I walk inside the door of the bank, there is no way for me as a customer to get cash. It is cashless.
Pearse Doherty (Donegal, Sinn Fein)
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There is no ATM inside the branch that gives out cash. It only accepts lodgements.
Pearse Doherty (Donegal, Sinn Fein)
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Not in this branch. That is the case in many branches. There is an upgrade of the facility that will allow for lodgements and withdrawals. At this point it is only lodgements.
Pearse Doherty (Donegal, Sinn Fein)
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One of us is obviously wrong here. I will correct the record if I am wrong. I am sure the witnesses as well-paid bank officials know. Is Mr. McLoughlin telling me that all lodgement machines inside the bank premises allow for both lodgements and withdrawal of cash?
Mr. Liam McLoughlin:
I am saying that the machines that take lodgements also dispense cash. The minimum functionality on the machine is to dispense cash. Since 2010 we have invested in these machines to take lodgements of cash and cheques. I am particularly interested to know what branch the Deputy is referring to. I am not aware of which branches take lodgements into the machine but do not dispense cash. There may be some but that would surprise me.
Mr. Stephen Mason:
In Donegal, we have 13 branches which is by far the most extensive network of any bank in Donegal. Seven of those branches have external lodgement ATMs so that 24-7 the customer can make lodgements externally or withdraw cash externally. The other six will have it by the end of the year.
Pearse Doherty (Donegal, Sinn Fein)
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I am glad that Mr. Mason has clarified that the machines in some branches will take lodgements but will not dispense cash.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The witnesses can come back to the committee in detail on that point.
Mr. Liam McLoughlin:
To answer the question on Irish, we have introduced this extended service in our ATMs and have invested in them since 2010. Our machines traditionally dispense cash. The functionality of the new machines that take in cash and cheques and provide that service 24-7 to our customers, whether inside or outside the branch, is so complex that it is not feasible to put the Irish language into them. That would significantly affect the performance of the machines. The performance consideration outweighed the volume of transactions in Irish in the machines. There are 3 million plus transactions per month across our ATM estate. There are two transactions per day per machine in the machines in our estate that use Irish. The value to the customer of completing the transaction in an acceptable performance time and having that facility available 24 hours a day, seven days a week outweighed it. The complexity of adding the Irish language was a big challenge.
Michael McGrath (Cork South Central, Fianna Fail)
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I welcome Mr. McLoughlin, Mr. Mason and Mr. Farrell. Can Mr. McLoughlin give me an update on the tracker mortgage examination and Bank of Ireland's participation in the overall Central Bank investigation? Can he tell us where the bank is and the number of affected accounts and so on?
Mr. Liam McLoughlin:
We are participating in the tracker review. It is a very comprehensive examination overseen by the regulator. There are 602 customers who were entitled to a tracker mortgage who were not on a tracker mortgage. The examination is comprehensive. It is not complete; it is an ongoing review. There are still some matters to be addressed. There were margin errors for between 3,500 and 3,900 customers. That is the customers were on tracker mortgages but there was an error of up to 15 basis points on that tracker.
We have contacted all the customers and have put them back on the right rate. The situation is regrettable. Over the next few months we will be engaging them in respect of remedy and compensation.
Michael McGrath (Cork South Central, Fianna Fail)
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Overall, the numbers have not changed since last year when we were previously advised. I think there were 3,916 on a tracker rate that was out by 0.15%, or 15 basis points, and 602 accounts that were wrongfully denied a tracker. The examination in recent months has not unearthed new accounts affected.
Michael McGrath (Cork South Central, Fianna Fail)
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Is phase 2 complete?
Michael McGrath (Cork South Central, Fianna Fail)
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The bank has not completed the trawl of the accounts that may be affected. Is Mr. McLoughlin saying the number may change?
Michael McGrath (Cork South Central, Fianna Fail)
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When does the bank expect to pay redress and compensation to the affected customers?
Michael McGrath (Cork South Central, Fianna Fail)
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Has the bank quantified how much will be involved or how is it going about working out the appropriate compensation and redress?
Mr. Liam McLoughlin:
We built a model to work out the financial implication for the customer and to pay that redress.
The Deputy has reminded me that we did a very significant review of tracker mortgages in 2010 under the review of the Central Bank. At that stage, 2,100 customers were put back on tracker rates and up to 3,000 other customers were put onto a tracker rate at their next contract term date. Back in 2010, approximately 5,100 customers were addressed.
Michael McGrath (Cork South Central, Fianna Fail)
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I was aware of the 2,100. What was the issue for the other 3,000 Mr. McLoughlin mentioned?
Michael McGrath (Cork South Central, Fianna Fail)
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That was in accordance with the contract but they did not lose any time as such.
Michael McGrath (Cork South Central, Fianna Fail)
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Their contract had not expired. What is the cost estimate so far of this issue for Bank of Ireland?
Michael McGrath (Cork South Central, Fianna Fail)
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What does that involve? Does it include redress and compensation?
Michael McGrath (Cork South Central, Fianna Fail)
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Does that €25 million include the 2010-11 trawl and the 5,000 accounts?
Mr. Liam McLoughlin:
In terms of fair value for those customers, the fact that they were put back on the rate in 2010 means that they have not accrued seven years of interest since then. They were put back on the correct rate at that point. The fair value matter does not arise in those customers' cases.
Michael McGrath (Cork South Central, Fianna Fail)
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The €25 million relates to the current examination in terms of cost to the bank.
Michael McGrath (Cork South Central, Fianna Fail)
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The bank really needs to repay the money that customers overpaid. That should be an absolute priority for the bank. If the shoe was on the other foot and people owed the bank money it would not be shy about chasing them and asking for it straightaway.
Michael McGrath (Cork South Central, Fianna Fail)
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There were reports that some Bank of Ireland staff felt they were wrongly denied the right to return to a tracker rate after a period on a fixed rate. Where do matters stand in that regard?
Michael McGrath (Cork South Central, Fianna Fail)
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No decision has been made.
Michael McGrath (Cork South Central, Fianna Fail)
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When one adds up all these accounts, the 5,100 accounts in 2010-2011, the 3,900 or so that were put on the wrong rate, albeit 15 basis points, and now the approximately 600 that the Bank of Ireland has found, we are approaching 10,000 accounts which were affected in some way. Has the bank figured out how it happened?
Mr. Liam McLoughlin:
The focus has been on putting the customers back in the right place rather than a root-and-branch investigation of what happened. As the Deputy said, in the case of the majority of the 3,900, what happened was that the tracker rate was moving regularly while the customer had a contractual right to a certain rate. By the time they drew down the amounts involved, they were put on a rate that was an average of 15 basis points higher. It is regrettable. We have apologised to the customers about this and we have sought to put them back on the correct rates as quickly as possible.
Michael McGrath (Cork South Central, Fianna Fail)
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I accept that. The priority should be to look after the customers but I would assume that with a cock-up of this scale, which is not unique to Mr. McLoughlin's bank - and we will question the other banks as well - Bank of Ireland would have carried out its own internal investigation as to how it happened. How is it that thousands of customers were wrongly denied a tracker rate to which they were contractually entitled? Has the bank got to the bottom of how that happened?
Michael McGrath (Cork South Central, Fianna Fail)
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I agree with Mr. McLoughlin about that.
Mr. Liam McLoughlin:
As I said, the 5,000 customers were addressed in 2010. It was not the norm at that stage. The bank acted with oversight from the Central Bank to address that in 2010 and, in the context of everything that was happening at the time, the focus was on bringing a remedy to those customers as quickly as possible.
Michael McGrath (Cork South Central, Fianna Fail)
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To pick up from Deputy Pearse Doherty's questions, the Central Bank published a report on influences on variable rate mortgage pricing in 2015. The bank has provided its report to us and it shows the cost of funds at 41 basis points. There other elements that go into mortgage pricing. That report went through the cost of capital, the cost of credit risk and the operating costs of running the bank, in addition to the cost of funds. We have a figure for the cost of funds. It is a blended group figure. Are there figures for the cost of capital, the cost of credit risk - thankfully, arrears are falling - and the bank's operating?
Mr. Liam McLoughlin:
I do not have a number that is applied to the mortgage book on its own. In terms of overall numbers in the accounts, there is the capital requirement, the risk-weighted asset and the capital intensity required for Irish mortgages versus UK mortgages. Those numbers are in our accounts.
Michael McGrath (Cork South Central, Fianna Fail)
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Are they in the form of basis points?
Michael McGrath (Cork South Central, Fianna Fail)
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They are not in the form of basis points. Is it possible to convert them to that metric?
Michael McGrath (Cork South Central, Fianna Fail)
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I am curious with regard to how the bank goes about its pricing because it arrives at a retail interest rate, it builds that up by looking at the components that feed into that pricing and it knows what the components. However, Mr. McLoughlin is telling us that he cannot break down, in numerical terms, what components comprise the 4%, 4.5% or whatever is the figure.
Michael McGrath (Cork South Central, Fianna Fail)
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But does Mr. McLoughlin have it?
Michael McGrath (Cork South Central, Fianna Fail)
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On the rates, Mr. McLoughlin says that 27% are on standard variable rates. Is that across the three LTV bands - the less than 60%, 60%-80% and more than 80%? I refer to the combined accounts.
Mr. Liam McLoughlin:
Yes. That variable rate book has been around for some time. In light of our focus on fixed rate price for the past couple of years and what happened to house prices, much of that is at the higher band. Given where house prices went, generally quite a number of the LTVs would be in excess of 80%.
Michael McGrath (Cork South Central, Fianna Fail)
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Let us a consider the case of a customer who has a higher than 80% LTV. He or she will be on a rate of 4.5%. Can he or she move to a fixed rate for, say, two years at 3.2%?
Michael McGrath (Cork South Central, Fianna Fail)
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If the customer's LTV is over 100% and he or she is negative equity, can he or she still move to a fixed rate of LTV at greater than 80%?
Michael McGrath (Cork South Central, Fianna Fail)
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Does that mean that customers with Bank of Ireland who are in negative equity can fix for two years at 3.2%?
Michael McGrath (Cork South Central, Fianna Fail)
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That is the published rate, which is also the one-year rate.
Michael McGrath (Cork South Central, Fianna Fail)
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Why does the bank not just compete on rates? It does this cash-back offer of 2% and 1% down the line. The Competition and Consumer Protection Commission looked at that in its recent report. In a way, it blinds the customer and makes it much more difficult to assess which product will provide the best value in the long term. I think the bank should compete on rates rather than what I would call cash-back gimmicks. Why does the bank not go down that road?
Mr. Liam McLoughlin:
We launched that four years ago in response to customer needs. There are different features to different products for different institutions. We have seen a strong and positive response from customers, particularly first-time buyers, to our cash-back offer, which is a very strong offer. The Deputy referred to rates. With the 3% or 3.2% rate on three-year fixed - depending on LTVs - the customers incur many initial expenses around legal fees and furnishings, and they like a lump sum. In effect, the lump sum takes down the cost of their borrowings in the first year. It has been a strong feature.
Unlike the marketplace, our fixed-rate offering has some very strong features that are very appealing to customers. Things are tied in on a fixed rate and there is no flexibility because of the break costs. However, the reality is that customers can overpay to the tune of 10% per month at the fixed rate without penalty. The Bank of Ireland also allows fixed-rate customers to port their mortgage from their existing home to a new home, so it is not the case that when a customer is in a house for five years and wants to move to a new property, he or she is stuck with a ten-year mortgage which he or she has to then break and take out a new mortgage. The customer is allowed to port that in its entirety. We have built a number of flexible options into our fixed-rate offering and they have proved very popular among our customers, which is evidenced by the figure of 88%.
Another important feature is that while 88% of customers are on a fixed rate, a number of others break their mortgages into an element of fixed and variable. Some customers like to have some element in three-year fixed, some element in five or ten-year fixed and an element in variable. All those features are accommodated under our flexi-options fixed mortgage.
Michael McGrath (Cork South Central, Fianna Fail)
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Why does the bank not introduce more granular detail in its fixed rates? It has them where there is an LTV of over 80%, but if one has a very low LTV, the risk for the bank of carrying that mortgage is minimal. Why does it not have even more competitive rates for people who are well down the road of paying their mortgages and who have a 50% LTV. The bank is not giving them any extra benefit even though the carrying cost for the bank of that mortgage is low.
Mr. Liam McLoughlin:
I welcome that feedback and will take it on board. If the Deputy does not mind, I will take it away with me. To simplify the product for our customers, we went along the lines of the LTV split, from a risk price point of view along the lines of the macroprudential rules from the regulator to avoid confusion. Rather than having it in a complex tiered system we tried to simplify the table. Previously, across the industry, the table was below 60%, 60%-80% and we went for a simple solution but we will see-----
Michael McGrath (Cork South Central, Fianna Fail)
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Are people who improve their LTV on submitting an up-to-date valuation allowed to move into the lower LTV band?
Michael McGrath (Cork South Central, Fianna Fail)
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The bank allows that movement.
Michael McGrath (Cork South Central, Fianna Fail)
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I am well behind my colleague's time ----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The Deputy is exactly on the spot. He has had exactly 15 minutes.
Michael McGrath (Cork South Central, Fianna Fail)
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I am ten minutes behind my colleague.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The Deputy should not waste it or he will find himself being cut off.
Michael McGrath (Cork South Central, Fianna Fail)
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The Chairman needs to check his clock.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I have checked. I was informed by the clerk.
Michael McGrath (Cork South Central, Fianna Fail)
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I wish to make two quick points if I may, at your discretion, Chair.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Yes, it is at my discretion.
Michael McGrath (Cork South Central, Fianna Fail)
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That is good. What is the bank's market share of new mortgage drawdowns in 2017 so far?
Michael McGrath (Cork South Central, Fianna Fail)
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Is the bank losing or gaining ground?
Michael McGrath (Cork South Central, Fianna Fail)
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Yes, but in terms of previous years.
Mr. Liam McLoughlin:
The reality is that the market has got more competitive. If one goes back many years to 2012 and 2013, where there was practically only two players, we had a bigger market share. The key driver or measure from the bank's point of view is our percentage of stock from a market share point of view, and this is 22%. Our market share of flow is 26%.
Michael McGrath (Cork South Central, Fianna Fail)
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Could the witnesses clarify the interest rate that applies to the warehouse element of a split mortgage? We had a commitment before from the CEO, Richie Boucher, that it would be 2.5%.
Michael McGrath (Cork South Central, Fianna Fail)
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So there is no policy of 2.5% on the warehouse portion across the board.
Michael McGrath (Cork South Central, Fianna Fail)
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I have a case I will bring to Mr. Mason's attention.
Michael McGrath (Cork South Central, Fianna Fail)
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I have seen one where the warehouse rate was 3.9%.
Michael McGrath (Cork South Central, Fianna Fail)
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I acknowledge the workbench space initiative. It is excellent. I have been to the one in Cork. It is a really good initiative. The enterprise weeks are one of the bank's real strengths and should be acknowledged.
On the lending to construction and development, in particular for residential, I know it is allocated on a case-by-case basis but, typically, what percentage of the development costs can be provided by way of debt by Bank of Ireland?
Michael McGrath (Cork South Central, Fianna Fail)
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The average would come in below 70%.
Michael McGrath (Cork South Central, Fianna Fail)
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I thank Mr. McLoughlin.
Kieran O'Donnell (Fine Gael)
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I acknowledge the workbench space in O'Connell Street in Limerick and the enterprise week. It is an excellent initiative. I will move on from what Deputy Michael McGrath said about providing funding to builders and developers to build homes. What has been the level of funding Bank of Ireland has provided for the building of new estates nationally in the past year? I could not see it in the information provided.
Mr. Liam McLoughlin:
As I said, we have a fund and it has been doubled in the past six months. One is looking at a fund generally in the order of about €1 billion. The level of funding at any point in time moves quite a bit given that the estates are being built at a reasonable pace in terms of the demand for new property. One is looking at a fund from the Bank of Ireland point of view of that scale.
Kieran O'Donnell (Fine Gael)
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Is €1 billion out at any one time?
Kieran O'Donnell (Fine Gael)
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Does the bank keep track of the number of units of houses that are being built that are funded by Bank of Ireland at any point in time?
Kieran O'Donnell (Fine Gael)
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Could Mr. McLoughlin give me the current figure?
Kieran O'Donnell (Fine Gael)
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Yes, because Mr. McLoughlin will appreciate that what we are looking at here, apart from providing mortgages, is what level of funding the bank is providing to building in particular for starter homes and affordable homes for young couples.
My next question follows on from that. The bank provides 3% cash-back. Is it fair to say that existing customers of Bank of Ireland might feel they are subsidising first-time buyers in terms of the mortgage rate being applied to their mortgages?
Mr. Liam McLoughlin:
I do not believe so because our fixed rate for below 80% LTV for three years or five years is 3% and 3.2% for above 80% LTV as well. That is available to new and existing customers. There is an equalisation in relation to the rate they pay on an ongoing basis over the term of the fixed element or over the life of the mortgage. There is no clawback on the cash-back arrangement, which is 2% upfront and an extra 1% at the end of five years. That is an incentive to first-time buyers but the fact that the same rate applies to both movers and first-time buyers does not imply subsidisation.
Kieran O'Donnell (Fine Gael)
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I am assuming that finds its way into the bank building up its risk base in terms of the rate it applies.
Kieran O'Donnell (Fine Gael)
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So, ultimately, if that 3% was not there, I expect it would provide a little bit of leverage in terms of what the bank could charge existing customers to achieve the same margin.
Kieran O'Donnell (Fine Gael)
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Does Mr. McLoughlin agree?
Mr. Liam McLoughlin:
I am saying we have different rates for different products. We have different rates for unsecured personal lending. There is a view taken in relation to a number of factors. We see this as one that first-time buyers have responded to very positively and we have also extended it in recent years to movers as well because they like the feature. When they buy a new property, they also incur an additional cost upfront at that stage in terms of legal fees.
Kieran O'Donnell (Fine Gael)
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There is an element of "hello money" about it in that it is an incentive for first-time buyers to go to Bank of Ireland rather than to another bank. Instead of charging a lower interest rate, where banks traditionally load interest upfront in terms of people repaying their mortgage, the bank is effectively factoring in a cash payment loaded upfront when people take out a mortgage.
Mr. Liam McLoughlin:
I would not agree with it being "hello money". The reality is the background to this payment to customers emerged a number of years ago when the bank was excluded from the broker market. We would have paid 100 basis points commission to brokers, which is the norm in the marketplace. Our view was that as we were excluded under the troika rules from brokers for four years, we said that rather than paying money to brokers we would give it directly to the customer upfront. As I said, it has proven to be very successful. A number of competitors in the marketplace have followed suit and introduced the same offer because it appeals to customers in particular when they are moving into a new house for the first time.
Kieran O'Donnell (Fine Gael)
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On the basis that it looks like ECB rates will not increase for the next two years at least and that the bank is now in a competitive market, will Bank of Ireland reduce its mortgage interest rate in line with the likes of AIB?
Kieran O'Donnell (Fine Gael)
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Is Mr. McLoughlin saying categorically that before the end of the year we will not see a reduction in the mortgage interest rate by Bank of Ireland?
Mr. Liam McLoughlin:
I am not saying that. What I am saying is that we will keep them under review. If I look at the questionnaire there is a page on mortgage fixed rates. It is on page 32 of the presentation. It shows the movement in our fixed rates for 2015, 2016 and 2017 and the cumulative impact as well. That is demonstrative from our point of view. It is in response in particular to the lower cost of funding in recent years. As we have seen improvements in funding costs and in order to be competitive - our fixed rates are very competitive and they are exceptionally competitive when one looks at the cash-back arrangements - we have been very proactive in terms of making those cuts.
Kieran O'Donnell (Fine Gael)
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I am talking about the bank's existing customers and the fact is there is a differential between the bank and AIB in the variable rate of over 1%. The point is when Mr. McLoughlin speaks about the fixed rate he is really trying to attract new customers. He referred again to the cash-back. If Bank of Ireland is looking after both new and existing customers, it would look to reduce the mortgage rate in line with the market.
I have two questions from page 1 of the other questionnaire.
Kieran O'Donnell (Fine Gael)
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At fixed rates?
Kieran O'Donnell (Fine Gael)
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Mr. McLoughlin did make specific reference in his response to the cash back for new customers.
Mr. Liam McLoughlin:
That is extra. The fact is the fixed rate is only at 3% for three-year money and 3% for five-year money. It is a very competitive rate in the marketplace. That is available to our existing variable rate customers. We have communicated with our variable rate customers to advise them about that.
Kieran O'Donnell (Fine Gael)
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Equally, Mr. McLoughlin will appreciate that the bank has existing customers, many of whom are under pressure, who look at another bank that is charging 1% less than they are paying. As Mr. McLoughlin well knows, in the current climate they cannot switch and they are effectively locked into the Bank of Ireland. That is the reality.
Kieran O'Donnell (Fine Gael)
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I accept that but if they wish to stay on the variable rate they can only make that choice with one institution. I would hate to see a situation arise whereby, effectively by stealth, the bank is forcing people on to a fixed rate because the bank would not reflect the mortgage rate within the institution, which is in line with the current market.
Mr. Liam McLoughlin:
The Senator is aware of the current market in continental Europe, North America. I would not differ with the Senator's view on how soon the ECB rates would rise as we are heading into a rising market, be it in three or five years time. The fixed rate is the norm in those markets although they are for a longer period of time.
Kieran O'Donnell (Fine Gael)
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Given the time at my disposal I will move on. I believe it is a fair observation to say that it could be interpreted that Bank of Ireland wants its existing customers to move to a fixed rate in that by keeping the variable rate higher than its competitors the bank is pushing people into a fixed rate. That is obviously - dare I say it - to the benefit of the bank.
Mr. Liam McLoughlin:
With regard to fixed rates, 50% of the market in Ireland is at fixed rates. We have a 26% market share and 22% share of stocks. There is a preference among customers generally, in our institution and others, to give themselves more certainty, which the fixed rate does. That is happening.
Kieran O'Donnell (Fine Gael)
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I have two quick questions. On page 1, questions 1 and 2, Mr. McLoughlin makes reference to the 4,083 private dwelling homes and the 1,625 buy-to-let houses that are 90 days or more in arrears at the end of June. Will the witness confirm that this is the actual number of properties?
Kieran O'Donnell (Fine Gael)
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How many properties is it respectively?
Kieran O'Donnell (Fine Gael)
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So the number of properties would be roughly at around 3,500 for the homes and 1,300 for the buy-to-lets?
Kieran O'Donnell (Fine Gael)
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What write offs has the bank given in respect of home mortgages and buy-to-lets in the last year?
Kieran O'Donnell (Fine Gael)
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How does Bank of Ireland view Permanent TSB's proposal that they wafted onto the public airwaves about write-offs with regard to the sale of buy-to-lets?
Mr. Stephen Mason:
We laid out the figures to give the committee the historical performance, and members can see that our buy-to-let mortgages have reduced dramatically over the last years. They have reduced at a significantly greater pace than the rest of the industry and that is highlighted in the presentation where we show our figures versus the industry. Whether one looks at 90 days in arrears or 720 days in arrears, the number of buy-to-let mortgages with Bank of Ireland has reduced dramatically and continues to reduce. I could not comment on what another organisation has done.
Kieran O'Donnell (Fine Gael)
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Have the Bank of Ireland any intentions to sell any of its portfolio loans to investment houses or, as is colloquially known, vulture funds?
Kieran O'Donnell (Fine Gael)
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My final question is concerned with macro issues. Back in July 2008 - before the crash - a predecessor of Mr. McLoughlin's, Mr. Richie Boucher, who was in the role at the time, appeared before the finance committee. In fairness to him he was the only one of the bankers who actually said publicly that we had a problem with liquidity. We are now in a situation where house prices are rising at a rapid rate, especially in Dublin. Are there any circumstances in which we could have a property crash again and what would those circumstances be? How are things different now with Bank of Ireland than nine years ago?
Kieran O'Donnell (Fine Gael)
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They relate to the same issue.
Mr. Liam McLoughlin:
A lot of lessons have been learned over the last ten years. With regard to where prices are at, the market fell back 60% immediately post-2009. House prices have recovered by about 30%, or about half of that, over the last ten years. While house prices are rising there is still value. Our own view, which I feel very strongly, is that there is a serious supply issue that needs to be addressed. The bank will play its role in that but in response to Deputy Doherty's question, there are restrictions around to what extent the bank will lend to property developers. With the 70% rule there are cautions but there are other people who will provide equity into the marketplace also. We do not see a housing bubble or a crisis of that nature on the horizon today. Our pipeline for new mortgage business is very strong and very positive but our issue is, and our customer feedback is, that the frustration is one of significant supply gaps.
Paul Murphy (Dublin South West, Solidarity)
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I thank the witnesses for the presentation. What was the thinking behind the hashtag advert which went, "Orla and her boyfriend stopped renting and moved back with their parents to save the deposit for their 1st home"?
Paul Murphy (Dublin South West, Solidarity)
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Would Mr. McLoughlin accept that the story the bank was telling, as described by Francis Doherty of the Peter McVerry Trust, that it pointed to a strategy by the banks to entice people to borrow as much as possible to buy houses that are as unaffordable as possible?
Mr. Liam McLoughlin:
There was no such strategy. We told the story of a customer - and we have many customers in different scenarios - and it was to personalise a particular story. It was not just the one as we tell lots of examples of customers' stories. There is video out at the moment of a customer who has taken a personal loan for a wedding. There are many different stories and people like to hear and understand experiences that others are having. There is no strategy to get people to over borrow.
Paul Murphy (Dublin South West, Solidarity)
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Clearly, the narrative that the story is a part of is an expression of a part of the housing crisis in that people are unable to rent, are forced back to live with their families or parents in order to be able to afford to go on and rent or to get a mortgage. Does Mr. McLoughlin accept that it was ill-advised?
Mr. Liam McLoughlin:
The advert came out in August, which is a low news period and it received a lot of profile. There was no malintent behind the story. There was no offence intended. It was about telling a story and I would not take it out of context or believe there was any malintent behind it. Having reviewed it myself the norm nowadays on social media is that people like to understand other people's different experiences. There was an attempt here to tell a story, as we had done in many different examples. It was not done with any malintent at all.
Paul Murphy (Dublin South West, Solidarity)
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I am not sure people like that one. It is fair to say that it did not go down well.
Paul Murphy (Dublin South West, Solidarity)
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It was viewed as reflecting an attitude taken by the banks and establishment generally of blaming young people or pushing them to take the drastic step of not living independently in order that they would be able to afford a home. That is how it was perceived by people.
Paul Murphy (Dublin South West, Solidarity)
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The flip side of that story is the degree to which homes are unaffordable. The witness stated the average income to price ratio for a first-time buyer shown in the questionnaire was 2.88. With the average house price in Dublin currently slightly more than €400,000, this means the combined income of two people seeking to buy a house would be €140,000. Obviously, this is not a circumstance of Mr. McLoughlin's making and responsibility cannot be placed solely at the door of the Bank of Ireland. However, the witness will accept that many young people are now precisely in the position of Orla who features in the advertisement and cannot afford to leave her parents' home and get into the housing market.
Paul Murphy (Dublin South West, Solidarity)
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On the buy-to-let market, the response to Question 8 indicates there were 234 assisted voluntary sales and surrenders of buy-to-let properties. Do the witnesses have figures on the number of these sales which resulted in a tenant being evicted to achieve vacant possession?
Mr. Stephen Mason:
No, we do not have those figures. This would be done by the landlord or a receiver where we appoint one. In terms of what actions might be taken, as the Deputy knows, the receiver must, on taking over a property, stand in the shoes of the landlord. When a receiver is involved the bank ensures the property is registered with the Residential Tenancies Board, which is often not the case when we appoint receivers. Registration with the RTB gives the tenant rights. We also frequently find that properties are not insured and we make sure they are insured and any necessary maintenance is carried out.
Paul Murphy (Dublin South West, Solidarity)
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Mr. Mason referred to receivers. In answer to Question 10, the bank indicated that, as of 30 June 2017, a fixed charge receiver had been appointed or approved to 819 properties. If one can adds the figure of 819 to the figure of 234 voluntary sales or surrenders, one arrives at a figure of more than 1,000 properties.
Paul Murphy (Dublin South West, Solidarity)
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Okay.
Paul Murphy (Dublin South West, Solidarity)
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I take Mr. Mason's point. Let us say the figure is 850 properties. Does the bank have no idea if there have been evictions?
Paul Murphy (Dublin South West, Solidarity)
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In that case, evictions could have taken place in more than 1,000 properties. However, the bank has no record of evictions and has no idea if any have taken place.
Mr. Stephen Mason:
No, the landlord would make that decision. Properties can be sold with the tenant in situ or they may be vacant. The receiver must comply with the Residential Tenancies Act and the terms of the contract. The tenant would certainly not be worse off if we appointed a receiver. We believe the tenant would be better off in terms of his or her protections.
Paul Murphy (Dublin South West, Solidarity)
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Does the bank have any procedure in place to protect tenants who would face homelessness in the event of eviction?
Paul Murphy (Dublin South West, Solidarity)
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The following question was answered earlier, although not fully. The witnesses indicated the bank has a low number of vacant properties. Will Mr. Mason indicate what is the average length of time properties remain vacant when the bank takes possession?
Mr. Stephen Mason:
The Deputy is asking for an average figure. There is probably not a typical time because if there are issues with the property, for example, title issues, they will take some time to resolve. If the bank or a receiver takes vacant possession of a property, it will be marketed very quickly.
Paul Murphy (Dublin South West, Solidarity)
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A number of non-governmental organisations in the housing sector have raised this issue. Last year, for example, Threshold informed the Joint Committee on Housing, Planning, Community and Local Government that there was clear evidence available to its services that when vacant possession was obtained for sales purposes properties were left unoccupied for a considerable period.
Paul Murphy (Dublin South West, Solidarity)
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We will move to an unrelated issue, namely, the bank account of the Ireland Palestine Solidarity Campaign, which has been discussed previously at the committee. I understand representatives of the campaign had a meeting with the bank last February following correspondence with the committee. After all of that, including correspondence with various Deputies, we are still none the wiser as to the justification for the bank's decision to shut down the bank accounts of a campaigning organisation which raises funds in Ireland and spends the bulk of them spends. We heard only some vague references to regulations and risk appetite. Given that the account in question is a deposit account, there is no risk involved from Bank of Ireland's point of view. Will the witnesses explain the position or shed more light on this case? it looks like a worrying case of political censorship and interference by a bank in the affairs of a legitimate group that is involved in campaigning activities, perhaps under pressure from other quarters.
Mr. Pat Farrell:
Obviously, I cannot comment on an individual case because of customer confidentiality. However, the Deputy is correct that the bank must observe a whole series of regulations. The regulations on the opening and operation of bank accounts are the result of the evolution of legislation on money-laundering, sanctions, etc. The Deputy called out some of them. These regulations are onerous and extensive and the bank must ensure at all times that it operates all accounts in a manner consistent with them. That said, in the particular case raised by the Deputy, we conveyed to the account holders that we had assessed the case and it was outside the risk appetite of the bank. Unfortunately, I am not in a position to elaborate on that because, as I stated, customer confidentiality attaches to all of those accounts.
Paul Murphy (Dublin South West, Solidarity)
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In that case, and speaking in general terms, are there are any regulations that apply only to Bank of Ireland and do not apply to Allied Irish Banks?
Mr. Pat Farrell:
As Bank of Ireland is organised across a number of markets, we are subject to regulation in the United States, the United Kingdom where we are regulated by the Prudential Regulatory Authority, and Ireland where we are regulated by the single supervisory mechanism, SSM, in Frankfurt. We have to observe and be aware and conscious of the regulations that apply across all of those jurisdictions.
Paul Murphy (Dublin South West, Solidarity)
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I am fairly sure AIB also operates in the jurisdictions Mr. Farrell cited. I will, therefore, ask the question-----
Mr. Pat Farrell:
I am not aware of what other jurisdictions AIB operates in but it is clearly in the Irish and UK market. I am not fully aware of precisely what regulations AIB would have to apply. However, as a bank, we must take a view and apply the regulations as they apply to us as an institution.
Paul Murphy (Dublin South West, Solidarity)
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AIB, like Bank of Ireland, operates in the United States and is subject to the same regulations. Therefore, the argument that some regulation prevents Bank of Ireland from allowing an account does not make sense. Is that not the case?
Mr. Pat Farrell:
As a bank, we are a heavily regulated entity and we have to apply the regulations enacted by legislators such as this House and others. We have to interpret those laws and then apply them. I can only speak for Bank of Ireland. We have to apply the regulations as we see our obligations and compliance duties.
Paul Murphy (Dublin South West, Solidarity)
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I can confirm that Allied Irish Banks also operates in the United States. As such, Mr. Farrell's argument does not make any sense.
As for the other argument, let us deal with it in abstract terms. How can it be the case that an individual or body having money deposited in a current account with Bank of Ireland can present a risk for the bank? What could happen?
The bank has their money. They do not have the bank's money. I can understand the bank lending someone money creates a question of risk appetite but how on earth is there a risk question when someone has money deposited with the bank?
Mr. Pat Farrell:
In relation to all accounts and products, there is a whole series of regulations and obligations that banks have to observe. They have to identify what the source of funds is in relation to the particular product the Deputy is talking about. It is not just a question of somebody depositing money with the bank and, because it is his or her money, the bank does not have to apply any scrutiny or any regulation. That is absolutely not the case. In fact, the bank has to apply a whole series of tests and regulatory scrutiny in order to fulfil its obligations. I would also point out to the Deputy that banks, where they are deemed not to have been in compliance or have failed in that duty, are subject to onerous sanctions and in some cases fines. Therefore, there is a huge onus on, and a very high threshold of proof for, the bank to be able to demonstrate clearly that it has satisfied all of its regulatory obligations and has applied appropriate levels of scrutiny when it is opening accounts, be they deposit accounts, borrowing products and current accounts. It applies across all products.
Paul Murphy (Dublin South West, Solidarity)
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My time is up. That is utterly unconvincing. It is utterly unsatisfactory that Mr. Farrell still has not answered them. I understand Mr. Farrell was at the meeting with them. The fact that they were able to subsequently open an account with AIB points strongly against the arguments Mr. Farrell has used in terms of regulation. It is very worrying that campaign groups could be censored in that way.
Paddy Burke (Fine Gael)
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I also welcome the delegation. I have three brief questions.
Most contracts for employees are fixed-term contracts, whether of five years, seven years, ten years or whatever, and mortgages are from 25 to 30 years. Is it more difficult for a person on a five year contract to get a mortgage for 20 to 25 years? What happens if he or she is laid off after the five years? Are there any break clauses, for instance, to help the person out until he or she gets a new contract or a new job? Is it more difficult for borrowers to get a mortgage with these new contracts or how does a bank operate?
Mr. Liam McLoughlin:
Initially, the bank will assess every case for a mortgage on a case-by-case basis. We would certainly recognise a dynamic in the marketplace where, let us say, rather than a job for life of 30 or 40 years in the same employment, it has moved much more towards, certainly among younger people, tending to work for shorter spells, as low as two or three years, with an employer and then move on. We are updating our own underwriting assessments to reflect that change in behaviours. It has become more common to have temporary contracts or contract periods as opposed to jobs for life and we recognise that. I would not say it is more difficult but certainly, it is an evolving social behaviour that we are building into our own underwriting.
We would see nowadays the fact that an employee moves from different employment as in many ways a strength. It is giving him or her greater job experience and breadth and therefore has its strengths. It is something we are building and enhancing our own underwriting to reflect.
Paddy Burke (Fine Gael)
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Where a person goes in looking for a mortgage who is on a five year contract, and who has maybe worked for three years and there are only two years left in the contract, would the bank not take that into account when it would be giving him or her a mortgage?
Mr. Liam McLoughlin:
One would look at the nature of the person's employment and what is his or her role for five years. It could be, let us say, an engineer versus someone with a different profession. One would look at the profession and his or her savings potential, that is, how the person spent his or her money during that five years and what money the person put aside for pension provision. One would take into account a range of factors that would come into assessment but if the person has not used that money over a five year term prudently or saved well, on a case-by-case basis, one would have different outcomes.
Paddy Burke (Fine Gael)
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The new credit rating coming into effect for borrowers will be controlled by the Central Bank. Some borrowers have been brought under it since 1 June and there will be more coming on stream. The credit unions will be joining shortly. I am sure that will have an effect on the mortgage that the person gets as well, will it? In fact, people have got mortgages up to this who may have used a credit union for part of the deposit or they might have used different avenues to get a deposit. Will this put more pressure on people getting mortgages? Does Mr. McLoughlin see it as a good or bad development?
Mr. Liam McLoughlin:
We see the introduction by the Central Bank of the central credit register as a positive development. As the Senator said, it came on stream in June. It has got to be used in earnest from September of next year. It gives a more holistic picture of a person's credit profile which was absent previously but is actually very common in other markets and jurisdictions. In terms of the customer's affordability and ability to repay, we would see as being positive the more holistic picture that the central credit register, CCR, will deliver.
In terms of mortgages, it would be inappropriate to give advice. However, in terms of secured debt where there is equity in a house as well, it is often better for a person who is on unsecured debt that it is more expense to put some of that into the mortgage. It is a matter of what advice he or she is taking and how well the person is applying the cost of various forms or secured and unsecured lending.
Paddy Burke (Fine Gael)
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Finally, in relation to opening bank accounts, we have seen recently where it is difficult for emigrants coming back from the UK, America or wherever who have not had a bank account for maybe ten, 15 or 20 years. These emigrants have made savings and done well for themselves but it takes them a long time to open a bank account. They probably need utility bills or a driving licence. They may not have an Irish driving licence. They may not have any utility bills. They find it very difficult to open bank accounts. Is there any way that the bank can streamline this or help to get it streamlined so that it would be much easier for them to open accounts?
Mr. Liam McLoughlin:
There are a number of things the Bank of Ireland has done. We launched a coming home initiative because we have seen a significant migration back into the country from places such as Australia, Canada and the UK. We launched a number of initiatives in that space. As I say, we are pro-support for the customer in terms of doing all those activities.
A lot of the activities, in terms of mortgage applications for people who are going to buy before they come home or open accounts, particularly new accounts, can all be now done online from wherever they are coming from. As Mr. Farrell mentioned a few minutes ago, the bar for the AML rules is going up for good reason. It is a constant challenge, but I hear the feedback. It is something we will continue to work on to make the process.
Paddy Burke (Fine Gael)
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I thank Mr. McLoughlin.
Rose Conway Walsh (Sinn Fein)
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I thank the bank representatives for their presentations. Most of the questions I wanted to ask have already been asked.
I want to return to the bank's risk models and its risk models at the time of the banking collapse not showing up the dangers there. I want them to explain how the risk models the bank has in place at present are reflected in the bonus culture within the bank.
Mr. Liam McLoughlin:
My colleague, Mr. Farrell, will give some colour in terms of changes to the risk models and risk governance. Risk is an important factor in the remuneration arrangement in the bank but I would hasten to add that for a number of years, since effectively 2010, there have been no bonus arrangements or culture in the bank. Bonuses are not a feature of the remuneration package in the bank and have not been for over seven years.
Rose Conway Walsh (Sinn Fein)
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Can I clarify with Mr. McLoughlin if there are any restrictions on the bank in terms of the bonuses that it can decide to give to its staff?
Rose Conway Walsh (Sinn Fein)
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That is good.
Mr. Pat Farrell:
Senator Conway-Walsh is correct in saying that there has been a huge evolution in the way risk is managed and governed within banks since the crisis. If I take the case of the bank, we have a governance structure which is very focused on risk. It flows right from the court of directors- the board itself. We have a court risk committee. It is a dedicated sub-committee of the board. Their responsibility - they are all non-executive directors - is to maintain oversight of the group's overall risk profile. They also ensure that the bank is adhering to the group's risk principles, which are reviewed regularly, its policies and all of its standards. They also monitor all of the risk elements of any due diligence appraisal of any mergers or acquisitions that we might do.
They have very strong oversight and comprise non-executive directors of the bank. There is also a group risk policy committee, which is comprised of senior management. It maintains oversight of all the group-wide divisional control functions. I could go on. There is quite an elaborate structure.
The other thing I would add on the question Senator O'Donnell asked about the safety of banks is that there have been significant changes. The amount of capital that banks are now required to hold is significantly higher than it was at the time of the crisis. Bank of Ireland has robust and strong capital ratios and adequate buffers. These are regularly overseen and reviewed by the single supervisor in Frankfurt, the local Central Bank and by regulators in the UK and the other markets we work in. Another feature of that, as the committee is probably aware, is all banks were required to change their legal structures so they would be fully resolvable or recoverable in the future if there was any prospect or likelihood of failure. Bank of Ireland, in common with other banks, has changed its legal structure which provides further safeguards both for taxpayers, if we reflect back to the previous period, and for customers as well. A whole series of changes have taken place as I said, with the governance structure on risk in the bank, with the changes to the legal structure of the bank and the requirements for the holding of capital.
Rose Conway Walsh (Sinn Fein)
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So really what Mr. Farrell is saying is he is confident in the internal changes that have been made within the bank. If there was to be one red flag that would cause Mr. Farrell any concern in terms of his risk analysis for the next 12 or 24 months, what would it be?
Mr. Pat Farrell:
We do not have one red flag. We monitor a whole range of risks and in our annual report we spend about 50 to 60 pages calling out all of the principal risks. We monitor all of them regularly. We incorporate all of those risks into our planning. We plan for them and we make sure we have contingency built in so that our business model can cope with any of those likely range of risk scenarios that might emerge in the course of a period ahead.
Rose Conway Walsh (Sinn Fein)
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So Mr. Farrell is not at all concerned about the escalating property prices, particularly in Dublin and surrounding areas, and that people are paying way more than the value of the property.
Mr. Pat Farrell:
All of those things are on our radar but we also have underwriting standards. We have policy and procedures in terms of how much credit we will extend. We have very strong underwriting criteria so they are all safeguards and mitigants against that particular risk. All of those risks are called out. Credit risk, operational risk, and business and strategic risk are all covered in our risk profile across the bank.
Rose Conway Walsh (Sinn Fein)
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They are all covered internally. I want to ask about credit card charges and credit card interest rates. Is that something the bank has examined in terms of the average credit card rate? Why are the reductions in lending never reflected in the credit card rate? What is the gap between the official cash rate and the credit card rate? Can Mr. McLoughlin comment on that?
Mr. Liam McLoughlin:
We have a range of products with credit card rates from the mid-teens to just over 20%. The credit card has a variety of features to it but the most common feature, particularly since the crisis in 2009, is that most customers use their credit cards and pay down the debt on pay date. So 50% of our customers have effectively 56 days of free credit.
Rose Conway Walsh (Sinn Fein)
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How much profit does the bank make on credit card customers?
Mr. Liam McLoughlin:
We do not disclose that number. It is a good business for us but we have seen an emerging trend of customers who use the card for the ease and facilitation of making payments but not for the credit features. Less than half of the customers use it for credit purposes; they pay it down and do not pay for any credit.
Rose Conway Walsh (Sinn Fein)
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Obviously there is another half that does and there are extortionate rates. I want to address the issue of the services that have been cut from rural Ireland. I want to very briefly outline what cash services were available as a norm before the recent changes and what services are now not available in a typical Bank of Ireland branch. I am very conscious I am short of time and have a number of other questions I want to ask.
Mr. Liam McLoughlin:
In all of our 250 branches we have a cash service. The means of delivering that cash service has evolved. If I go back ten years, traditionally the majority of cash services were provided over the counter. There is now a far greater usage of contactless cards and debit cards, and credit cards for taking out cash, which I do not advise because it can be expensive. We still have a lot of use of debit cards. We have increased our investment in and the availability of lodgment ATM machines which is a more enhanced version of an ATM machine. We have 250 branch locations. We have not reduced our branch footprint over the past six years. We have 1,650 ATM machines. Both the ATM and the branch fleet is the biggest in the country. We will have made those cash lodgement ATM machines available in 80% of our estate by the end of this year outside the branch. That does actually-----
Rose Conway Walsh (Sinn Fein)
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What have you taken away that customers do not have now inside the bank that they used to have?
Rose Conway Walsh (Sinn Fein)
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I live in a rural community. Nobody ever consulted the people who are loyal customers not only of Bank of Ireland but other banks. In many places, because Bank of Ireland did not close down its branches when other banks did, people moved to Bank of Ireland in good faith and now they find they are going in and talking to machines. They cannot get a human being to speak to. One of the bank's key objectives is to develop relationships with existing and new customers. How will the bank develop a relationship with a customer when all they are given is a machine to transact with? I am really concerned about small businesses in areas where they cannot get change and cannot interact with a human being. We could spend a whole session discussing loyal customers of Bank of Ireland and how they have been treated over the years. There are many flags coming up on this. Can Mr. McLoughlin explain the bank's objectives in choosing diversification by geography? Will he explain to me what that means? People feel the banks are feeding into the divide between the urban and rural. The realisation that they will make greater and greater profits through complex financial transactions is all the banks can see at the moment. Have any of the decisions made by the banks been reversed in terms of having greater customer service within the banks?
I have asked a lot of questions but I am just trying to get at whether there is any way of stopping this absolute train crash from destroying the relationship between people, particularly in rural areas, and the main banks. Does the committee have to put in a public bank and put all its weight behind having public banking services and making the credit unions more robust?
Rose Conway Walsh (Sinn Fein)
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I would appreciate that.
Mr. Liam McLoughlin:
What we have seen here is an enormous move by the vast majority of people towards digital banking. We introduced mobile banking five years ago. We now have more than 8 million transactions per month on mobile. It is more convenient and secure for the customer, in particular elderly customers. Our other challenge is there are up to 6 million transactions by telephone per month.
People have found a lodgment ATM very convenient. They can now lodge their salary cheque or whatever on their way home in the evening rather than leave work to make a lodgment during the traditional opening hours of 10 a.m. and 4 p.m. The bank is very strong in its commitment to local communities. We have not closed any rural branches. We have received feedback that some businesses have experienced an inconvenience in terms of lodging coin and we are still trying to find solutions for some customers. The contactless investment is very significant.
During the summer I visited one of the communities when we had made these changes, which have been completed at this stage. It was a rural community with 5,000 people living in its hinterland. In April in that community, there were 131 transactions across the counter over the course of the month, not per day.
Rose Conway Walsh (Sinn Fein)
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That is because one cannot speak to a human being.
Mr. Liam McLoughlin:
Before the changes were made and there was a person in the branch every day, there were 131 transactions and 65 of them were by two customers. Customers are finding the lodgment ATMs and extended hours very convenient. Our staff who worked behind the counter, doing the cash transactions, are now in front of the counter. We have loaned €3.4 billion in the first six months of the year because we made more staff available to visit customers on their farms or at their places of work. Customers are finding this a far better experience than doing a transaction, using a credit card across the counter.
Rose Conway Walsh (Sinn Fein)
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What I am getting from Mr. McLoughlin is that there is no way that anything will change and that the continual drive to automate everything will continue, regardless of the fact that many people in rural Ireland do not have broadband. Have the witnesses fed in concerns about people not having broadband and mobile phone connectivity to their strategies or to the Central Bank? Has the bank worked into its strategy the fact that the further delays in rolling out broadband will exclude many of the bank's customers from interacting with the bank?
Mr. Pat Farrell:
On broadband, none of the changes and facilities that have been introduced in our branches are dependent on broadband. One interacts with the lodgment and cash machine in branches so there is no dependency as such on broadband. We support the roll-out of broadband and we are in favour of equality of access to broadband right across the country. In fact, we have been involved in initiatives to roll out and promote broadband.
I am from the west of Ireland - in fact, all of us here are from rural Ireland. The Bank of Ireland has 64 branches across the province of Connacht. Our nearest competitor has 40. The Senator comes from Mayo. We have ten branches there while our nearest competitor has seven. We have a substantially larger footprint than our nearest competitors in all of the counties. We have a huge commitment. As my colleague indicated earlier, Bank of Ireland has invested €10 million this year in upgrading facilities. We also have a huge investment in the enterprise town concept, the primary focus of which is on rural Ireland. We have run a number of these across all of the counties this year. We are committed to that and to doing even more of them next year.
Rose Conway Walsh (Sinn Fein)
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I am conscious of time and I want to get a picture of the bank. I appreciate what has been said but I still think that the gap between the bank and its customers is widening, particularly in rural Ireland, and I am disappointed it is on that track.
How will this affect staff? Obviously, there will be many redundancies because humans will no longer be needed in many of the branches, at least certainly not in the numbers that they have been to date.
Mr. Liam McLoughlin:
The role and purpose of the branch is changing quite dramatically. Branch offices are becoming business development hubs. Staff are coming from behind the counter to the front of the branch and engaging with communities through enterprise town initiatives. Bank of Ireland will run 130 such initiatives this year. In 2008, the bank had 16,000 staff. In 2011, the bank had 11,000 and it has the same number today. There is no forecast in terms of what will happen in the future. The primary role and purpose of the branch is changing and is much more about supporting and facilitating communities to thrive.
Rose Conway Walsh (Sinn Fein)
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In terms of retaining staff and protecting jobs, does the bank envisage jobs losses in its banks?
Mr. Liam McLoughlin:
There is an ongoing voluntary redundancy programme available to staff for anyone who wishes to avail of it. The profile and mix of staff is changing. We are bringing in new staff in different areas. Staff can move on through a voluntary arrangement scheme that has been agreed with a staff representative body and is in place.
Rose Conway Walsh (Sinn Fein)
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There will be no compulsory redundancies?
Rose Conway Walsh (Sinn Fein)
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I have many more questions but I will not ask them now.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I can come back to the Senator. I have some questions and Senator Horkan wants to comment.
On the comment made by Deputy Paul Murphy about the ad that was withdrawn, I must be the odd one out because I did not see much wrong with the ad. That is informed by the fact that my son and his partner came home to live because he felt it was cheaper and prudent to do so. He told me he would be saving up while he was living at home to get his deposit and to qualify for a loan. I am just wondering how long that is going to take. That is the worrying thing for me and, I would say, many others.
Gerry Horkan (Fianna Fail)
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The Chairman is very easy to get on with.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The loan scheme is fine but I would like to see banks deal with the other issue, which is people who want to get into the mortgage market and cannot do so. Young couples are watching property going up in value and watching the difficulties for them increase. The bank must meet them in some way in terms of how to get them onto the property ladder. That is the issue. People are trying to get on to the property ladder in a constructive manner, but they have all the obstacles before them. The banks have found imaginative ways to give loans and accommodate people. Attention must be given, and perhaps by the Government, to ensure that such individuals and couples get loans.
Mr. Liam McLoughlin:
We agree with the Chairman's comments. As I said before, the Bank of Ireland has doubled its funding for residential development. We are keen to support various initiatives in that space. My colleagues in corporate and business banking are very supportive of that, and clearly we would like to see more happen on the supply side.
In terms of mortgages, it is in our vested interest to use the capital our shareholders have given us to make more mortgage lending available. There is no shortage of appetite by the bank or the board to make more mortgage lending available. The biggest issue we see at the moment is an insufficient housing supply to deal with the appetite for mortgages, particularly by first-time buyers.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I understand that, but that is the excuse used by everyone. The fact is that houses do come on the market and some of them are the right price. There are difficulties for people who qualify for social housing and also for those who fall into the category where they have too much income to go onto social housing lists but too little to qualify for a bank loan. That is how they are being viewed at present and there seems to be no possibility of them getting out of the circumstances they find themselves in. They can avail of a shared ownership scheme or some other imaginative way to secure the house that they want, but the banks must come to the table in trying to find a solution to that issue.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Turning to customers who have found themselves in difficulty in terms of lending from the bank, according to the table supplied, the bank has sent 47 letters advising of legal action. Is that right? I refer to the answer to question No. 8, which refers to the solutions used.
Is Mr. Mason saying that there are only 47?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Forty seven only?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Yes.
Mr. Stephen Mason:
The chairman will have seen on the first page the number of buy-to-let accounts that we have in difficulty is now below 1,600. The number continues to reduce. Receiver enforcement action was taken. There would have been a stage where we would have told the landlord that if he did not engage with us, we would do that. They would have moved on to that stage and, therefore, they would be more advanced.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is that what that describes?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The volume of the correspondence members, I as Chairman and the clerk to the committee receive generally peaks following a meeting such as this. I was trying to find a way of dealing with the queries that arise. It is with great disappointment that I have to report that there has not been a single response from Bank of Ireland. On 19 June 2017, I sent a batch of those letters to the bank; I got no reply. In July, I sent a reminder; I got no reply. On 23 August, I wrote again; I got no reply, not even an acknowledgment. These letters were sent in hard copy and via e-mail to Mr. Boucher. I do not want an answer regarding the specifics in each case but at least, I would have thought it good manners on the part of the bank to acknowledge my letters. The cases involved people not necessarily from my constituency - they were from all over the country - but if someone goes to the bother of expressing their frustration and anger or even outlining their difficulties with the bank and draw attention to them in writing, somebody should write back to them. When the bank did not write back, based on the fact that I had written to the bank and sent the various reminders, I consider it quite bad manners not to have done that.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I am not asking for particulars relating to individuals but these people were good enough to bring their cases to the attention of the committee and out of respect for them and the committee, I expect an acknowledgment of those.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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This brings me to the various figures relating to tracker mortgages. I just want to understand them. Is it correct that the bank has identified a further 602 accounts that were wrongfully denied a tracker rate?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Where were they identified?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is that phase 2?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is that phase completed?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Let us stick with the 602 customers. They are included in a report to the Central Bank on completion of phase 2. Is phase 2, therefore, complete with the exception of the Central Bank coming back to the bank on the numbers?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Mr. McLoughlin mentioned that in 2010, some 5,100 customers were put back on tracker rates automatically. They were identified and then-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Then there is a figure of 3,900. Are these all separate figures?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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So the 3,900 customers were affected because the right rate was not applied to their mortgages. Are those fixed?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Mr. McLoughlin outlined a sum of €25 million as the cost to the bank and he said that includes compensation.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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There was no need for compensation.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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If the bank has established that the cost will be €25 million, which includes compensation, how much of this amount comprises compensation? How much has been paid?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Approximately
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The bank must assess the compensation and, therefore, it is must know who is entitled to what compensation.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How long have those terms been with the Central Bank?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Has anyone been paid?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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No, I asked about compensation.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Because it is the fault of the Central Bank
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Why have they not been paid?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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With whom?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Mr. McLoughlin has established what he considers to be the terms of the settlement or the terms of the compensation for his bank.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How long has the Central Bank had the terms of the bank's compensation? How long has it been pondering over them?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I understand that. Why are the customers not being paid then? Is there a problem with how the bank views it and how the Central Bank views it?
Mr. Liam McLoughlin:
The remedy and compensation arrangements are nearly finalised. They are with the bank itself for final approval because they are not approved ultimately by the Central Bank. They are approved by the bank itself. As I said in reply to Deputy McGrath earlier, my expectation is they will be paid in the next number of months and, hopefully, all will be paid before Christmas.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What went on between the bank and the Central Bank regarding this compensation that caused it to be delayed for this length of time?
Mr. Liam McLoughlin:
The compensation arrangements include appeal procedures, for example. If customers, when they ultimately receive compensation, disagree with the determination, there will be an appeals process. There has been a process to agree what the appeals process would look like, and which independent people would sit in on it. They have to be vetted. A number of arrangements need to be addressed and they have been substantially addressed at this stage.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Addressed by the Bank of Ireland?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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But not the Central Bank.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The bank has put its proposal to the Central Bank. Has it come back as yet to say, "Go ahead, lads"?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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When did the Central Bank come back to the bank?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I understand that. When did the Central Bank come back to say it was okay to pay the compensation?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How long has Mr. McLoughlin waited since the Central Bank told him that before putting it to his board?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I understand all that but at some point in time, the Central Bank said it was okay and Mr. McLoughlin would have said, "We will that to our board of directors and have it approved". When did that happen? When did the Central Bank sign off on what Mr. McLoughlin needed to do next?
Mr. Liam McLoughlin:
Their role is not one of approval but the latest engagement in respect of this was on 13 September, which was last Wednesday.
I spoke to my board, the board of Bank of Ireland Mortgage Bank, on Monday of this week and we spoke to the group board on Tuesday so, as I said to the Chairman, it will be this month-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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As Mr. McLoughlin said to Deputy Michael McGrath, they will be paid within the coming weeks.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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One of the questions asked of the committee was when the money would be refunded. Mr. McLoughlin has answered that. Customers have not been provided with an update since February 2017.
Mr. Liam McLoughlin:
There have been a number of communications with the customers to tell them they are being placed on the correct rate. What the customer has not yet been told but will now be told, as I said to the Chairman, in the next couple of months is what that compensation is. The payment of that compensation will happen between now and Christmas.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It is between now and Christmas. It is not a matter of weeks.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It is that length of time while the bank makes an agreement with each individual customer.
Mr. Liam McLoughlin:
There are 602 customers and 3,900 to be addressed. I am very happy to say the process will kick off over the next couple of weeks. As I said, I hope it will be done by Christmas. It is in our interest to expedite it as quickly as possible now that we are at the final stages of it, and we will progress that.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How many bank staff are involved in the tracker question?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What is the number?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did the bank at any time make a promise to those 1,800 that they would be put back on trackers?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Never.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Would anyone else be aware of it? Mr. Mason?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What meetings took place within the bank to decide not to include the 1,800?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Good, but what did they say? What did they tell Mr. McLoughlin?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Why not?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The customers in question were on trackers, were they not? Are they being treated differently from everyone else?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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They were on trackers.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Yes, but Mr. McLoughlin must know. There are 1,800 of them in it. Were they or were they not on trackers?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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For this line of questioning, I am asking Mr. McLoughlin about the staff in the bank.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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A meeting was held by this working group, which decided that the customers were not entitled to trackers.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How many are overseeing this exercise under the independent or with the independent-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Deloitte has looked at the 1,800 then. There was an independent person looking at the system-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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From the firm?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The bank is paying Deloitte.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The Central Bank.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Bank of Ireland recommended someone from Deloitte to be the independent adjudicator or the independent person present in that system, that process. Is that so? The bank pays adjudicator, it recommends the adjudicator to the Central Bank and it just happens that the same independent person is in Deloitte.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That does not sound very independent, that is all.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did the decisions that were taken around the 1,800 cases affect any other cases, or was it specifically-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Will Mr. McLoughlin check that and come back to us on it?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It is very simple. There are 1,800 cases and the bank had Deloitte look at those cases.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What it found in respect of those cases and the queries that were raised, presumably, relative to whether or not the customer was on a tracker and whether or not he or she should be put back-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It is just that strictly-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Mr. McLoughlin mentioned preference for a fixed rate. He talked about this earlier with some of the members here. What is that fixed rate?
Mr. Liam McLoughlin:
The fixed rates are detailed in the documentation. For a three-year fixed mortgage it is 3% and for five-year mortgages it is 3% in the case of loan-to-value ratios, LTVs, below 80%. For a ten-year rate it is 3.8%; for one year it is 3.2%. In all cases, in addition to those figures, there is, as I discussed earlier with various Deputies, a cashback arrangement whereby we give customers within 45 days of drawdown 2% cashback, which they may use however they wish. After five years a further 1% cashback is paid to the customer.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did the bank undertake a review as to how this tracker issue occurred?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I understand that, but how did it actually happen? Was it just a complete accident, human error? Has Bank of Ireland looked at that part of it?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The bank has not carried out that analysis yet.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I understand that. I am just asking Mr. McLoughlin, would the bank not be interested in how it actually all happened? It has cost it a lot of money.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Not yet. My last question is as follows. On 27 in this questionnaire, to which Mr. McLoughlin replied-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It is on page 29 - questions 27 and 28. Mr. McLoughlin was asked, in my opinion, a pretty straightforward question about risk managers. What is a risk manager?
Mr. Liam McLoughlin:
There is generally in any financial institution a separation between front-line business or people who run the business and what is known as second-line defence, which consists of risk managers who assess the risk the bank takes. All banks are in the business of taking risk and we make an assessment as to the level of risk we take. A typical risk we face in our business is quite significant. For example, today it is Brexit. Brexit is a significant risk and there is much uncertainty about the impact of it on our business, but the risk managers would discuss with management and with the board on a monthly basis our best assessment of how that risk will impact our business. There is no certainty-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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In this reply Mr. McLoughlin refers to the fact that there is a group risk framework.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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However, there is legislation alongside that and it requires the risk manager to report any breach of liquidity. Is that right? The second part of that question asked for details, if any, of the times since 2005 that the person holding that responsible position of risk manager had changed or if any reports were made to the Central Bank regarding his or her responsibilities.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Eight hundred?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Eight hundred?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Has any of them ever reported concerns?
Kieran O'Donnell (Fine Gael)
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Define a risk manager.
Mr. Liam McLoughlin:
For example, there would be underwriters on the credit side. All the loan applications that come into the bank would be recommended by a business manager, and a risk manager would oversee or review them. It is the same for risk managers involved in overseeing business strategy. There are risk managers involved with insurance risk and market liquidity risk. The pool of risk managers is actually very extensive, therefore.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The point, on which Senator O'Donnell picked up, concerned the chief risk manager, the manager responsible under legislation for reporting to the Central Bank if there is any difficulty with liquidity in the bank. There are not 80 to 100 of them.
Mr. Liam McLoughlin:
I am not aware there is a chief risk officer under legislation. There may be in the public sector but not in private sector companies I am aware of. As part of the management structure of the bank, there is a risk manager who reports up to the group CEO and, through the risk framework, to the board of the bank. There is also an independent internal audit function which is independent of the risk managers and the CEO who reports to the chair of the audit committee. They do a range of internal audit reviews on an ongoing basis. Those reports go back to the business element and also the group audit committee on a monthly basis. Therefore, there is a very extensive risk framework, at both second and third levels.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I understand that. Where legislation is in place relative to a risk manager and where a liquidity difficulty or other difficulty arises in the bank, must the risk manager report it to the Central Bank? Is that correct?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Okay, fine.
Mr. Pat Farrell:
Chairman, please, let me give the context. We have an extensive risk-management process. We devote one 100 pages in our report to risk. We have credit risk, reputation risk and a host of other risks on which we regularly report to our court risk committees and the court itself. Of course, there are regular interactions with regulators also across all of this because they have regulatory oversight.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did the witnesses ever make a report to the Central Bank through the risk manager or the risk manager group relative to the performance of the bank? That is all I am asking.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Every day.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did the witness every have cause to say, "We have a difficulty here".
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The bank did not have to comment back in 2000 when we had the crash because we all saw the outcome of that. All I am asking for is that there be an appropriate structure in place, as I understand is now in place-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did the witnesses ever have to report to the Central Bank on a concern the bank might have had? In the answer, it is stated the bank co-operated fully with the banking inquiry in 2015. There was a crash but nobody seemed to have reported to the Central Bank that there was a liquidity problem, or otherwise. In the years from the crash onwards, has there been any reason to report to the Central Bank. I do not have the Central Bank's report here but it states it has concerns, although not in regard to a specific bank. It states that in one of the quarterly reports. All I am asking is whether Mr. Farrell has expressed any concern to the Central Bank.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I know. Has the bank had to report on any adverse details?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It is not that the witness cannot but that he will not.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It is central to the work of this committee to know, at the least, whether there is any difficulty in any bank that has caused the witnesses to talk to the Central Bank. I am not saying the witnesses' bank has any difficulty but that generally, out of respect, we should be informed. That is all I am asking. I am now finding out that, irrespective of whether there is a difficulty in regard to the bank, the witnesses are not going to comment. I am sure the public will be convinced by all of this.
Mr. Liam McLoughlin:
May I clarify? There is a very extensive engagement every single day of the week. All the reports are seen. There is no information and all the risks are reported. All the internal audit reports are seen, in addition to all the operational risks. They see all the issues. We have learned the lessons here. The information sought is very comprehensive.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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This is not personal. Senator O'Donnell said earlier that Mr. Boucher said at a committee meeting at some stage or another he had concerns about a liquidity problem in 2008. That is fair enough.
Kieran O'Donnell (Fine Gael)
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It is the only institution that acknowledged that there might be an issue. I will give it that.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That is where the question is coming from. In answers to questions Nos. 27 and 28, the witnesses gave a reply that is just bank talk and bluff. That is how I would describe it. The way in which the bank has answered those two questions does not impress me. If the witnesses can, they should be a little more open about the issues. They have given their answer today so we will take it up with the Central Bank when its representatives appear before us.
Mr. Liam McLoughlin:
May I just reiterate the point? It is very hard to state everything in one paragraph. There are 100 pages in which the risks we face as a business and the framework we have in place are very clearly articulated. I could not emphasise it enough. To say the regulator, the SSM, the joint supervisor team from Frankfurt and the Central Bank of Ireland are in daily contact would be an understatement. There is very close scrutiny and the bank aims to work in a very constructive way with the regulator. The comparison between now and then is chalk and cheese. Our investors, our board and our court risk committee are all over this. It is very hard to answer in one paragraph, but how the governance works is set out-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I know how it is set out but the question is whether it works. The question is on the Central Bank's view of the interaction with banks generally and the information they give. My view on the witnesses' answer to questions Nos. 27 and 28 is that they have refused to answer. If the 100 pages were written by the same individual who wrote the paragraph given, I do not believe I would like to read them because there would be little or no information in them.
Mr. Liam McLoughlin:
I apologise if there has been a misunderstanding. That was not the intention. It was a question of how to synopsise 100 pages into one or two paragraphs. We talk about the risk framework in place, which is approved by the court. All the matters go to the court risk committee. We also talk about the bank having co-operated in 2015 with the work of the committee, to which the Chairman referred. I do not believe there is any intention on the part of the bank to be glib or give a wrong answer in respect of risk governance. What goes on is actually very comprehensive. There is a very strong, integrated approach to risk management in the bank that is very much to the fore of how we do business on a day-to-day basis.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I am not going to pursue it today but I will in the future because I do not accept that Mr. McLoughlin does not necessarily have to answer here in regard to questions Nos. 27 and 28. I refer to the manner in which the questions have been answered. If the Central Bank can put it into its report and if Frankfurt put it into a report, we have to be clear here in order to rebuild confidence in the banking sector. We have to adopt a different attitude. That is my view on it. The question is similar to the question asked about the credit guarantee scheme. The phrase "without the permission of the scheme operator" was stated.
Who is the scheme operator?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Yes, but why was the operator not asked whether the information could be given to the finance committee, and then it could be given, instead of sending the fool further? This type of gobbledygook and smoke and mirrors has not served us well in the past and is not serving us well now.
Does Senator Horkan wish to contribute?
Gerry Horkan (Fianna Fail)
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Many issues have been addressed already but I wish to discuss a few points. It is fair to acknowledge national enterprise week and the workbench partnership spaces. My branch in Montrose might have been one of the first to go cashless. Actually, I know that these branches are not cashless. Mr. McLoughlin is shaking his head because he does not like the phrase but they are non-over-the-counter transaction branches. They are not all in rural Ireland, but I accept that I can go to a different branch not too far away and get over-the-counter transactions if I want. Mr. McLoughlin might give us an indication. This is obviously the way the bank is going. The percentage given for over-the-counter transactions was, I believe, only 2%, but Mr. McLoughlin might outline for us what the figure was previously. I presume that many transactions involve direct debits or Paypath and have been automated for the past 20 or 30 years. Has the figure decreased from 22% or 82% to 2%? It is important for us to understand where it is going. I imagine that the model will be different in ten or 15 years' time.
It was mentioned that the bank was experiencing difficulties with people using coins. I know of Bank of Ireland customers who have left to open post office accounts to deal with their coins because they cannot deal with them in their bank branches. Mr. McLoughlin might outline to us the bank's plans in that regard.
Gerry Horkan (Fianna Fail)
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Did that include every direct debit - for example, salary payments? What is the definition of "transaction"?
Gerry Horkan (Fianna Fail)
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I am sorry to cut across Mr. McLoughlin, but were automated direct debits and salary payments not included in the figure in the first instance?
Gerry Horkan (Fianna Fail)
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Does Mr. McLoughlin just mean phones or does that number also include iPads and laptops?
Mr. Liam McLoughlin:
The app is effectively the mobile phone. It is significant. In the past 12 to 18 months alone, the quantum of cheques being used has decreased dramatically by in excess of 26%. People are using fewer cheques for transactions.
The Senator is right about what he pointed out. We are cognisant of the issue and are trying to find solutions. The situation with coins in particular is more difficult. Contactless transactions of less than €30 using the tap-and-go card have undermined coin transactions, but the coin is still there. It is a challenge, and much of the solution will probably involve accelerating the usage of devices such as contactless. Strangely, we have found that shops that have introduced contactless devices have seen their turnovers increased by a minimum of 20% because customers have developed a new behaviour towards small value transactions, for example, buying a cup of coffee. It has been a good experience for shops.
One sector that has been hit by the coin challenge is that of charities. Even they are introducing tap-and-go solutions across the board. According to a survey that I saw this week, a number of those charities have seen a doubling in their charitable funds with the replacement of coins.
The situation poses a challenge and there is a significant cost involved in the handling of coin. Cash-in-transit trucks are coming to the fore in terms of helping us to solve that challenge.
Gerry Horkan (Fianna Fail)
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Previously, Mr. McLoughlin attended a committee meeting with Mr. Boucher, whose work with the bank we should acknowledge and who we should wish well in his retirement. I was not having a go at the branch system, but I asked Mr. Boucher whether we were moving towards a cashless society. He felt that we were not and said people liked having cash. The concept now is that people are almost being charged by the bank for having money on deposit and the bank minding the money as opposed to in the old days when they got some level of interest on deposits. I will not quiz Mr. McLoughlin on them, but current interest rates will not get people too far on their holidays and so on regardless of what they have on deposit.
Mr. Liam McLoughlin:
The background to that has to do with quantitative easing and everything else that has been done by the European Central Bank. For all institutions and Government bodies that leave surplus funds with central banks, there is now a 40-basis point charge on deposits. Having been in an environment of negative interest rates for the past 12 months plus, that is perverse, but it is the world in which we live.
Gerry Horkan (Fianna Fail)
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I hope Mr. McLoughlin does not foresee a situation in which anyone with cash on deposit will be charged for the privilege of the bank minding it.
Gerry Horkan (Fianna Fail)
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It is not in the bank's business model.
Gerry Horkan (Fianna Fail)
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In response to Senator Conway-Walsh, Mr. McLoughlin referred to bonuses. Are there no bonuses any more?
Gerry Horkan (Fianna Fail)
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Is there any level of performance-related pay and so on?
Gerry Horkan (Fianna Fail)
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Someone's salary is that person's salary and that is it.
Mr. Liam McLoughlin:
Depending on timing and positions, pension arrangements are in place and there may be a car allowance. As part of the 2011 arrangement, however, performance-related pay was removed. Very few exceptions might have been agreed at the time for some people in commission arrangements. However, wholesale commissions and variable pay are not a part of the remuneration structure today.
Gerry Horkan (Fianna Fail)
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Would it be fair to say that, historically, the more a lending manager or the like loaned, the better his or her remuneration, but that this scenario no longer exists?
Gerry Horkan (Fianna Fail)
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Pre-crash, the more someone loaned out, the more he or she was likely to get an increased pay packet. That loan money might not necessarily have come back to the bank, but it was what someone loaned out.
Gerry Horkan (Fianna Fail)
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But it is not any more.
Gerry Horkan (Fianna Fail)
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I thank Mr. Mason for his questionnaire response and slides. He mentioned that debt forgiveness is not an option as far as the bank is concerned, yet the number of mortgages in trouble has decreased. Is that because they have all started to perform or that a large number of people have surrendered their properties because they could not deal with their mortgages? Will he give us an idea of what percentage of the decrease from 13,000 to 4,000, or whatever the figures were, relates to people surrendering their properties, raising their hands and going and that which relates to mortgages that started performing? Of the new terms that the bank has given people, nine out of ten rearrangements are working, so one in ten is not performing. What will happen to the one in ten?
Mr. Stephen Mason:
Nine out of ten is an important figure. The majority of this issue has been resolved through forbearance. There was a time when we had 800 people working on this matter. It has been resolved, case by case, through understanding individuals and families' circumstances and working with them to find solutions.
Unfortunately, in a limited number of cases we have not been able to find solutions and that is where we get into the mortgage-to-rent, voluntary sale, voluntary surrender or legal process, but if the Senator is asking about how the majority of the issue has been resolved, the rearrangement is working in nine out of ten cases. Because one out of ten falls over does not necessarily mean that we will not try again. It could easily be that the circumstances of that customer have changed and he or she may need a second forbearance. That would be unusual, but it might be required from time to time. Even when people enter the legal process, that may not be the end of the matter. We have struck out over 300 cases in the past 12 or 18 months where people were involved in the legal process and not engaging with us but then started to engage with us and we found consensual resolutions. To answer the Senator's question, the majority of cases which have been resolved have been resolved through working with the people people to find an appropriate forbearance arrangement.
Gerry Horkan (Fianna Fail)
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When Mr. Mason uses the word "forbearance", is it generally a restructuring, a lengthening of the mortgage repayment period and a reduction of things, including interest payments? What are the solutions Mr. Mason offers when somebody is not sticking to his or her original agreement and is in arrears?
Mr. Stephen Mason:
It depends on the nature of the issues involved. They can be short-term or long-term. If one takes the classic case of somebody who became unemployed for a period of time and is now back in a job, he or she may not be on the same salary on which he or she was when the mortgage originated. Something like a term extension will probably occur to reduce the monthly repayment in order that the person concerned can retain ownership of the asset.
Gerry Horkan (Fianna Fail)
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Mr. Mason is relatively happy that he is working his way through it. On the number he referenced of 800 people dealing with this issue, what is the number down to?
Gerry Horkan (Fianna Fail)
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I thank Mr. Mason.
I think Mr. McLoughlin has dealt with the matter of cheques to a certain extent. He referenced it before I did, but I had noted it as a point to raise. I think this is one of only three European countries in which cheques are used in any significant volume. Clearly, many people are reducing their use of them. I know that there is a very big push not to use cheques for State transactions and to try to get everyone using electronic fund transfers, EFT, and so on. Will Mr. McLoughlin give us an idea of the areas where cheques have gone from and where he sees them going? Does he think cheques will be gone in two, three or four years, or will there always be a role for them in some organisations?
Mr. Liam McLoughlin:
Our expectation is that the reduction in the use of cheques will continue apace and that they will reduce to a very small number. I would not be very surprised if they were ultimately to disappear as it is a very costly form of payment. From a bank point of view, the cost of processing a cheque is 60 cent per transaction. There is also Government stamp duty, as well as a range of other charges that bring the cost up to approximately €1.50 or more for the customer for that piece of paper. The cost of a direct debit or digital transaction today is 10 cent. A contactless transaction - flashing the card - costs 1 cent. That is the differentiation. While I see the use of cheques continuing to decline and cheques ultimately disappearing, I do not see the same happening in the case of cash. While coin volumes will reduce, I do not think the use of cash will ever reduce. The Irish like a wad of cash in the back pocket and I think that is going to continue. Volumes will come down, but cash will not disappear and there are no plans for that to happen either.
Gerry Horkan (Fianna Fail)
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Is Mr. McLoughlin going to implement measures to reduce the number of cheques or will he just allow them to fall away naturally?
Mr. Liam McLoughlin:
It goes back to the investment about which we spoke which is a very important positive for us and the functionality of our lodgement and ATM machines which can read cheques using optical character recognition technology which will process them through the system. That will continue. Clearly, even the pricing structure - 60 cent plus stamp duty versus 10 cent which is heading towards zero-----
Gerry Horkan (Fianna Fail)
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Rather than putting a cheque in an envelope and sending it with a €1 postage stamp on it. Does Mr. McLoughlin have figures for the volumes of transactions by cheque? Does he know what they were five years ago and ten years ago and what they are now?
Gerry Horkan (Fianna Fail)
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Yes; it would be interesting to see them.
On Bank of Ireland's branch network, Mr. McLoughlin has clearly pointed out that in the past six years Bank of Ireland has not closed any branch, which is to be acknowledged and welcomed. On the roll-out of branches that do not have over-the-counter facilities, if I get Mr. McLoughlin's terminology right, will he outline the exact number of branches the bank has, the number that do not offer over-the-counter services and where that number is heading? Whether anyone likes it - perhaps we do not like it - people get on with life, deal with the issue and manage their coin and foreign exchange transactions differently. Presumably, Bank of Ireland has a programme to roll out such branches and restructure branches. I acknowledge that my bank manager, Mr. Gavin Leech, Mr. Karl Manning and the people in south Dublin do a fantastic job. They are great ambassadors for Bank of Ireland's brand and the Montrose workspace is lovely. I cannot buy foreign currency there, but I will live with that. What is Bank of Ireland's total number of branches? How many do not offer over-the-counter services and where is the figure going in the next 12 months to two years?
Mr. Liam McLoughlin:
Six years ago we had just over 250 branches. That is the magic number from our point of view. All 250 branches offer what is known as advice. Therefore, we have business and customer advisers in all branches, but we also have what are known as self-service facilities, including lodgement machines. About 90 of the smaller branches only offer that facility; they do not offer full cash or half-day cash services. There are no immediate plans to change that figure significantly, but that is not to say it will not happen. However, there are no such plans because that programme was only completed at the end of August. To be fair, we have moved to the model to which we had planned to move, but that does not mean the position will not change-----
Gerry Horkan (Fianna Fail)
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That happened only in perhaps the past 12 or 18 months. When will the first non-over-the-counter transactions-----
Gerry Horkan (Fianna Fail)
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Before 2016, all 250 branches offered over-the-counter services?
Gerry Horkan (Fianna Fail)
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There were 27 branches which did not in 2016 and a further 63 this year-----
Mr. Liam McLoughlin:
That is very much reflective of the use of mobile tecnology and all of the other things, including the introduction and take-up of contactless transactions. That is very much the context in which it has occurred. If I look at the size of the branch network, we are in the business of examining customer needs and what is the demand for our services. This week alone I opened a new branch in Cherrywood in south Dublin where there are significant business opportunities and a significant personal customer base. In the past 18 months I have opened six new branches, including on Mainguard Street, Galway; in Ardkeen in Waterford. We open branches where there is a demand for them.
Gerry Horkan (Fianna Fail)
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Are they all without over-the-counter cash facilities?
Mr. Liam McLoughlin:
They all offer advice and self-service facilities. As far as I am aware, there is no new branch being opened or planned where we will offer over-the-counter services, but all are being set up with business advisers included. An important part of their role will be increasing growth in the lending of €3.4 billion into the economy. We have the capital and want the number to rise. We find that nowadays there is also a greater need for the giving to customers of face-to-face investment management or pension advice. That will be the role of branch staff, as opposed to transacting payments on accounts where there are better alternatives available to suit the needs of most customers.
We put in place arrangements for vulnerable customers, of whom there are some. Our experience has been that the vast majority of elderly customers are very proficient at using digital technology and devices, do not have issues with using them and quite like the privacy offered and the security of using lodgement ATMs. However, there are some vulnerable customers, for whom we have arrangements in place. As part of the change programme, we contacted over 10,000 of them to talk them through the changes. As I have called out, there are issues which we have not fully resolved. I have given a few examples. Coin use is still a challenge for us and we are trying to see what we can do to help in that regard, but we are investing to make progress. We will spend €10 million before the end of the year to make sure over 80% of our branches will have external lodgement ATMs. Therefore, customers will effectively have extended opening hours - banking 24/7 - as opposed to six hours per working day during the week. That is the journey.
I appreciate the feedback on Mr. Gavin Leech and Mr. Karl Manning and will pass it on.
Gerry Horkan (Fianna Fail)
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On cash volumes, the economy is growing, the population is increasing and so on. Does Mr. McLoughlin see a decrease in the volume of pure cash transactions?
Gerry Horkan (Fianna Fail)
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What percentage is it? Does Mr. McLoughlin have any figures?
Mr. Liam McLoughlin:
I noted the volume but it will probably come down by approximately 60% over a number of years. I do not think it will disappear but it is certainly coming down. I see contactless and other such devices being the thing. It is part of the Irish culture. We like the wedge and it will not disappear but, ultimately, cheques will be phased out altogether. They are too costly to process.
Gerry Horkan (Fianna Fail)
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To move on to another issue, the Central Bank mortgage rules were implemented and were the subject of a degree of controversy. It can certainly be argued that the rules kept a lid on property prices in certain parts of Dublin at least where the relative rate of increase that might otherwise have been there was suppressed. Does Mr. McLoughlin have any particular thoughts on relaxing the mortgage rules? When and if they are made easier, will it not just drive up property prices so that instead of people being able to borrow €380,000 and buy something for €450,000, they can now borrow €680,000 and the price of a €450,000 home has risen to €750,000?
Mr. Liam McLoughlin:
Sure. When the rules were introduced three years ago, we made a submission on our view. Directionally, in terms of the macroprudential rules, we support what the Central Bank is trying to achieve and the principles of where it was trying to get to. It is a matter of public record that we might have taken a different route in terms of phasing but, certainly, the principle of what it is trying to achieve is very valid. The area of biggest concern, which has been discussed a number of times today, around which the greatest challenge has been is the difficulty for first-time buyers in urban areas where property is expensive and supply is short. It is very difficult for two young professionals to find a property. I do not think the macroprudential rules are the cause of the issue. There is a supply gap that needs to be addressed and that has been referred to by the Chairman and other speakers. That is where the focus is as opposed to the rules themselves which, directionally, are fine.
Gerry Horkan (Fianna Fail)
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I thank Mr. McLoughlin for that. I was a local authority member for 12 and a half years in the Stillorgan area and my branch is in Belfield, which became Montrose. Cherrywood is an area with which I am very familiar. My view is that the supply of affordable houses for younger people in those areas is crucial. There are an awful lot of Bank of Ireland people living in my area and the supply is not there but the demand is. It needs to be done.
Deputy Michael McGrath alluded to cash-back earlier. Does Mr. McLoughlin see cash-back as a very important part of what Bank of Ireland offers and is it something it is not going to change? Some people would argue that it is a gimmick which makes it harder to compare one product with another. Is it a very important part of the bank's model that it will want to keep for evermore or is it something the bank could live without?
Mr. Liam McLoughlin:
The view here is that nothing is for ever. We accept that. It is an attractive feature, particularly for first-time buyers. When one is trying to find a deposit and to get on the property ladder, it is a nice feature to have something to pay for the furnishing of a house or the legal bills. It has proved to be very attractive. Our volume of business activity is very positive and the customer feedback to us is that it is very well received. We have also moved on in terms of bringing into play our flexi-options fixed product, which, again, has features that customers like. Our product features are obviously evolving.
Gerry Horkan (Fianna Fail)
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An argument is put forward that these customers who get cash back are being subsidised by everyone else. What is Mr. McLoughlin's response to that?
Mr. Liam McLoughlin:
I do not buy that. Our view is that our fixed-rate offering is very competitive in the market today. Of our business in the first six months of the year, 88% was on fixed rate. More than one in four customers in the country have taken out mortgages with us. That same rate is also available to our existing customers who do not get the cash back and they are very keen on it.
Gerry Horkan (Fianna Fail)
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Why would anyone go for a variable rate that is almost 50% more expensive? It is perhaps 3% and 4.5%. Why do 12% of new borrowers go with variable?
Mr. Liam McLoughlin:
The attractiveness of the fixed rate is that it gives certainty to the customer and ourselves. The issue with variable is that, by their nature, the rates go up as well as down. Customers do not like that uncertainty. They want to know they are paying a certain amount every month.
Gerry Horkan (Fianna Fail)
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I said that was the reason 88% were on fixed rates. Why are 12% of customers on variable rates?
Mr. Liam McLoughlin:
The 12% on variable is quite common. Someone taking out a €300,000 mortgage will take €250,000 on a fixed and €50,000 on a variable rate. If he or she is in a job where he or she gets a bonus or if he or she gets an inheritance, he or she can pay off the variable amount and just keep paying the monthly fixed amount. The mix is quite a common feature. The customer will split the mortgage between a big chunk of fixed and a small bit of variable.
Gerry Horkan (Fianna Fail)
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I thank Mr. McLoughlin.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I am conscious of the time but ask Mr. McLoughlin to bear with us for a few minutes.
Aindrias Moynihan (Cork North West, Fianna Fail)
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Tuigim go bhfuil sé déanach. Mar sin, díreoidh mé ar aon phointe amháin. Is é sin an tslí go bhfuil Banc na hÉireann tar éis deireadh a chur le húsáid na Gaeilge ar na hATManna. Tá go leor daoine tar éis é seo a tharraingt anuas liom. Ghoill sé go mór orthu. I thank the Chairman for the opportunity to address the meeting. My focus is on one particular point because I am not a standing member of the committee. I refer to the issue of ATM services no longer being available in Irish. It is an issue that has angered a number of people who have raised it vociferously with me. Tuigim go raibh plé ann níos luaithe agus tuigim gur bhraith an banc go raibh an Ghaolainn ag cur isteach ar fheidhmiú an ATM i slí éigin. I understand there was a brief discussion on it earlier and that the performance of the ATMs was referred to in some way. Cad ina thaobh go díreach gur stop an banc ag úsáid an Ghaolainn sna hATManna? Ar deineadh aon taighde nó aon phlé leis na custaiméirí ina thaobh? Ar deineadh aon measúnacht ar an gcostas a bheadh i gceist leis? Why did the bank stop using Irish on ATMs? Did it do any research in advance with its customers and did it cost the exercise?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That question was asked before but I ask Mr. McLoughlin to go through it.
Gerry Horkan (Fianna Fail)
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It was asked but it was not overly satisfactorily answered, to be fair.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The question has been asked before and I am pointing that out. However, if Senator Horkan will bear with me, I ask Mr. McLoughlin if he will cover the points that were not covered before.
Gerry Horkan (Fianna Fail)
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I thank the Chairman.
Mr. Liam McLoughlin:
We have not taken Irish off the retail machines in retail stores. One sees them in various supermarkets and other stores and they only dispense cash. What has happened here is that we have invested in our fleet since 2010. Over the last seven years, we have brought in machines with new enhanced functionality. That functionality means one can now lodge cash and cheques from outside the branch. As such, we have extended the opening hours. We found that when we introduced the machines the functionality to add the Irish or any language was very expensive. The expense is not the issue; it also slows down the performance of the machine dramatically. Where the functionality to put through a transaction in both languages is there, it actually slows down the performance of the machine. That is the case. We have researched it in Europe, where they use a number of different languages if one wants to withdraw cash from a standard ATM. However, they have not introduced the additional functionality we have in multiple languages. It is the performance of the machine. When one has the option to have it coded in both languages, it just slows it down. What has happened is that our estate has gone from being a very bog-standard cash dispensing machine in 2010 to one where people can actually lodge cash and cheques and perform other functions. We have said we will leave the existing machines in place. As they are replaced, they will not be replaced with others that offer the language option.
I wish to comment on the demand from customers. I oversaw the introduction of the lodgment ATMs. Initially, I only wanted them in our smallest 100 rural branches. The customer demand for them has been very extensive. Customers like the fact that they can go to a lodgment ATM on a Saturday or Sunday to lodge cash or cheques. There is increasing demand from customers to which we have responded.
Aindrias Moynihan (Cork North West, Fianna Fail)
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Tá mé ar ais arís chuig an gcéad cheist. I am back again to my original question. Cén taighde nó plé ar dhein an banc leis na gcustaiméirí roimh ré? Cén costas ar mheas an banc a bhí ann? Cén tslí a chuirfeadh sé isteach ar fheidhmiú an ATM? Deineann an custaiméir ag an tosach agus leanann sé nó sí tríd i mBéarla nó i nGaolainn.
How could making a decision at the start to follow through in one language or another and to conduct one's business in whichever language one is most comfortable using impact on the performance of the machine? How can it possibly impact on the performance of the machine? How does it impact on the performance of the machine in other languages and in other countries? Conas a chuireann sé isteach ar chúrsaí i dtíortha éagsúla eile?
Mr. Liam McLoughlin:
The lodgment functionality we have is not available in multiple languages in other jurisdictions. We have added additional functionality. Doing the coding behind this functionality in multiple languages slows down the transaction response time. I get a lot of feedback from the 99% who do not use Irish - and the number is much more than 99%, it is quite a significant percentage more - asking why they have to go through this extra step of choosing English or Irish every time. People get frustrated and ask why they have to do it every time. It does impact responses.
Aindrias Moynihan (Cork North West, Fianna Fail)
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Mar sin, cén taighde nó plé a deineadh le custaiméirí? What research was done in advance with customers?
Aindrias Moynihan (Cork North West, Fianna Fail)
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Mar sin, ní raibh aon taighde déanta. There was no research on language.
Aindrias Moynihan (Cork North West, Fianna Fail)
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Maidir leis an chostas, will Mr. McLoughlin speak on the cost?
Aindrias Moynihan (Cork North West, Fianna Fail)
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Agus cén difríocht praghais a bheadh ann idir ATM dátheangach agus ATM le Béarla amháin? What is the price difference between bilingual and exclusively English ATMs?
Aindrias Moynihan (Cork North West, Fianna Fail)
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Ó thaobh an bhainc. The difference from Mr. McLoughlin's side.
Aindrias Moynihan (Cork North West, Fianna Fail)
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Mar sin ní raibh puinn taighde in aon chor. There seems to have been very little research into the decision.
Aindrias Moynihan (Cork North West, Fianna Fail)
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Ar deireadh, dá mbeadh rud é go raibh deis ag an fhinné filleadh ar an chinneadh agus gach rud a dhéanamh arís ón tús, an ndéanfadh sé aon rud difriúil? If Mr. McLoughlin had the opportunity to go back and review the decision, what, if anything, would he do differently?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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To conclude, I would like to raise a couple of issues. We will not get into them but I would like to mention them to Mr. McLoughlin. A lot of the cases being heard at registrar's court level involve Bank of Ireland. I attend some of the registrars' courts. When a customer of the bank engages with the registrar in an attempt to get information, correspondence or whatever else through the legal system, it is made extremely difficult. What is the process by which Bank of Ireland decides it will take an individual to court? Mr. Mason said these decisions are made on a case-by-base basis. If further efforts were made on the side of the bank, do the witnesses think that there would be fewer people being brought to the courts?
Mr. Stephen Mason:
We bring far fewer people before the courts than others. I looked at the number of civil bills which issued in the second quarter of this year and Bank of Ireland was responsible for 5% of them. We go through an exhaustive process before we get to the legal stage, which is the last stage of our process. When we take the legal route, it is because we have exhausted everything else we can do. We have fully complied with the Central Bank's code of conduct on mortgage arrears in terms of what needs to be done in respect of a customer who qualifies as non-co-operating. We do all of that and go through all of that process. The last thing we want to do is to go to court but ultimately, if a customer does not engage with us, our options narrow and that is the only option left available to us. It is only in a limited number of cases.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Does Mr. Mason believe that there will be an increase in the number of evictions or repossessions at the end of this year and in the course of next year?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Has he seen it in general?
Mr. Stephen Mason:
It is a general point which has been discussed at the committee before over the years. If we look at the number of owner-occupier repossessions this year, it is a very similar figure in the first six months of this year as it was in the first six months of last year. However, over the past two and a half years the number of owner-occupier customers who have been in arrears for more than two years has reduced by 45%. We are seeing a significant reduction in the number of people in difficulty. We are not yet seeing an increase in the number of repossessions. Whether we will do so remains to be seen.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Bank of Ireland has never packaged any mortgages or commercial loans for sale on to vulture funds. Do the witnesses think that will happen now that a level of really difficult cases in the bank has been reached? What do they think will happen?
Mr. Liam McLoughlin:
Even for the more challenging cases, the bank's strategy has always been to try to work through a solution with the customer. There are no plans for such sales, nor have there ever been such plans in the bank. That is not to say that it will never happen, but there are no plans and it is not our intention to sell non-performing loans to vulture funds. In fact, our performance over the past year with both small and medium enterprises and with mortgages has shown that we are very much in the business of acquiring performing loans.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Does Mr. McLoughlin think that there might be a need in the future for some form of an ethical fund which would handle the really hard cases over a longer period? It would buy them from the bank and then extend the periods out from when the loans were bought rather than having to involve vulture funds at all. Is there a space for that?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That is the core of the bank's approach.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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To go back to the point in respect of staff and tracker mortgages, I understand that there was a letter issued to staff, presumably by the bank, which said that those who were currently on a two-year fixed rate of 3.95% would be put on the ECB rate plus 0.75%. Can Mr. McLoughlin confirm whether that letter issued? If so, will he provide the committee with a copy?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That letter did go out.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did Mr. McLoughlin ever engage with Mr. Kissane, who seems to represent quite a number of people involved in these cases? He was before the committee and met a number of its members separately. He has a real grasp of this particular issue.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I know Mr. McLoughlin might have met him on a one-to-one basis in terms of him representing clients or customers. Did he ever think that a general discussion with him about the situation might help the general resolution of this problem?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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We found him quite constructive about this issue. The committee sends Mr. Boucher its good wishes for his retirement, that is, if he is not intending to do something completely different, which would not surprise me. We would like to ask the person who will replace him to have more regard to the nature of the replies in completing these questionnaires, which are of assistance to the committee. When I inquired with the witnesses about questions Nos. 27 and 28, the other banks were more forthcoming with their information.
The representatives of Bank of Ireland might want to review how they answer such questions. From my perspective as Chairman, I have gone through one round of meetings with the banks and the Central Bank. I am speaking about the witnesses from Bank of Ireland or from any other bank when I suggest it is fair to say that the game of dodging the bullet in any way possible, in response to the questions that are asked in this questionnaire or by Members of the Oireachtas, is over. I want to send that message clearly to those present today and to the officials in all the other banks. The answers that have been given to certain questions will simply not be acceptable when they come before this committee in future. There will be a far rougher journey for those who decide to present us with obfuscation and smoke and mirrors in order to talk their way out of these issues. That is not going to happen anymore. In terms of compensation, I want to see far greater engagement with and response to the customers who have been knocking on our doors for a number of years now. Those who are holding this up need to put their hands up and write the cheques. That message needs to be sent loud and clear to whoever comes next. I thank the witnesses for their attendance. We look forward to further engagement with them. We will hear from representatives of AIB at our next meeting on 26 September. I am sure they are listening with great interest.