Seán Fleming (Laois-Offaly, Fianna Fail)
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12. To ask the Minister for Finance if he is still pursuing an arrangement to deal with loss making tracker mortgages in Irish banks; when he expects progress to be make in this regard; and if he will make a statement on the matter. [1634/14]

Michael Noonan (Limerick City, Fine Gael)
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As the deputy will be aware Tracker mortgages were a particular feature of the Irish mortgage market in the recent past with many tracker mortgages originated during the property market boom in 2004 to 2008. Tracker mortgages were lent for both primary dwellings and buy-to-let investments and represent 60 per cent of the aggregate mortgage lending of AIB, BoI, and PTSB. These are low interest earning assets with a variable rate set at a fixed margin above the ECB policy rate –the majority of which result in a negative carry for the originating banks, that is, the rate that tracker mortgage borrowers pay on their mortgage is lower than the rate the banks fund themselves.

Although, these assets continue to be loss-making and represent a drag on the Banks profitability the situation is improving and is not preventing the banks returning to viability.

Improvements in Bank funding

In the past year improved confidence in the Irish Sovereign and its Banks together with the normalisation of money market interest rates in the Euro area has helped to further stabilise the domestic banking sector. This has allowed the profile of Bank funding to revert to a more normal sustainable mix. Funding rates in the wholesale markets are also starting to converge towards the banks more higher- rated European peers.

As recent capital market transactions have demonstrated the Irish banks have been able to access both secured and unsecured funding at competitive rates in a range of maturities across the curve. In addition, the deposit base has stabilised resulting in reduced reliance on central bank funding. Taken together this has helped to reduce the impact of the negative carry associated with tracker mortgages .

Furthermore, over the medium to long term an eventual increase in ECB policy rates will further reduce this negative carry, insofar as the differential between the rate that the banks fund themselves on the markets and the rate that tracker mortgage borrowers pay on their mortgage will narrow or ultimately yield a positive margin.

Banks becoming profitable again

Recent interim results and disclosures by the Banks indicate that the banks have made a lot of progress on re-pricing deposits and certain loan portfolios. In addition, operating costs and government guarantee fees are falling, boosting pre-provision profits. Both AIB and BOI have signalled a return to profitability in 2014 and over time it is expected that both banks will trade their way into sustainable profitability. This will place them in a better position to absorb the impact of the Trackers mortgages.

Self help measures

In recent times the Banks have pursued self-help measures to address this issue by introducing innovative solutions such as offering negative equity type mortgages and allowing borrowers to retain tracker facilities when moving house for a fixed period. These initiatives together with the recovery in the property market and an associated rise in housing transactions will also help to alleviate the issue.

Conclusion

In conclusion as I have previously advised the house, during recent Review Missions of the Troika the Irish authorities discussed the issues associated with tracker mortgages though these interactions did not yield any viable solution to the problem .While the trackers are less of a concern for the banks than in the recent past, we naturally remain interested in examining any sensible ideas that could help lower the funding cost associated with these assets.