The Chief Executives of Ireland’s three central retail banks are expected to engage in discussions with Taoiseach Simon Harris in the Government buildings this Monday. They will face scrutiny about their lending rates following a recent decrease in official borrowing costs by the European Central Bank (ECB). This encounter will be the first of its kind between the Taoiseach and the banking leaders since Mr. Harris assumed office in April.
Notably, Mr. Harris has held a position as the Minister of State for the Department of Finance from 2014 to 2016. His agenda also includes meetings with representatives from the non-banking lending sector this Wednesday, and then on Thursday with officials from the credit union movement. The government has affirmed these upcoming meetings.
Earlier this month, preceding the ECB decision and governmental elections, the Taoiseach stated his intention to obtain reassurances from all Irish banking heads. He wanted it confirmed that any reduction in the official interest rate will immediately benefit the householders.
However, it is believed that the top brass from Bank of Ireland, AIB and PTSB will inform Mr. Harris that they were among the slowest in European banking to elevate mortgage rates since the ECB upped its principal rates in July 2022, excluding tracker loans. Early this month, the ECB trimmed its primary lending rate by 0.25 percentage points, down to 4.25%.
Bank of Ireland’s chairman, Patrick Kennedy last month stated in their annual general meeting that less than 40% of the ECB increases reflected on their fixed-rate offerings. He explained this was their attempt to maintain equilibrium between the interests of savers and debtors.
The trio of Irish banks currently on the market proffer a headline saving rate of 3% for certain schemes. Still, nearly 90% of customer funds reside in on-demand and current accounts with minimal to no earnings. This situation permitted the banks to not fully transfer the ECB’s increases to mortgage loaners.
It’s anticipated that top banking officials will remind the Taoiseach of their restriction under competition laws to predict any future interest rate shifts.
Several days following the Government’s decision to further decrease its stakes from the post-crisis investments in the banking industry, conversations are set to happen. This move entailed selling approximately 5% additional shares in AIB, consequently reducing its shareholdings to just over 25%. On Wednesday, the selling of this stake managed to accumulate €593 million.
From early 2022, the Government has been gradually selling its shares in three different ways: consistently releasing small quantities of shares into the market; sporadically placing larger 5% blocks; and joining in the bank-run stock buy-backs. Originally, in January 2022, the Government owned 71% of the shares before the share selling initiative was inaugurated.
The Government offloaded its residual shares in the Bank of Ireland towards the end of 2022, whereas it still maintains a 57% ownership in PTSB. The continuous reduction of stakes held in AIB is likely to highlight the agreement between the Government and the bank.
This agreement is rooted in AIB’s original financial rescue, which underwent revision in 2017 preceding its first public offering. It mandates AIB to seek advice from the prevalent finance minister over “significant matters” such as a potential disposal or purchase surpassing €100 million, or an event that could potentially cause considerable reputational damage to the bank or State.
Interestingly, the relationship agreement with the Bank of Ireland tied to the bailout didn’t necessitate such requirements. As the taxpayers never possessed a majority share in this bank.