AIB hikes fixed rates again ahead of new profitability targets

Increases to apply across its AIB, EBS and Haven brands

AIB, the first Irish bank to increase mortgage costs after the European Central Bank (ECB) started to increase rates in July, said on Friday that it is adding a further 0.5 of a percentage point to its fixed mortgage rates for new business. The move means the bank has now added a full percentage point to its fixed rates over the past six weeks.

The move comes as the bank is preparing to raise its profitability target next Friday in a rising interest rate environment.

The bank, led by chief executive Colin Hunt, said the rate increases will apply across its AIB, EBS and Haven brands, after Friday. However, customers who currently have loan offers from the bank will have until January 16th to draw down funds at the previous rates.

This is a longer window than the one-month grace period the bank gave when it increased new fixed rates by 0.5 per cent in October and reflects the fact that the banking and property markets will come to a standstill over Christmas.


The latest move will, for example, increase the rate on AIB’s five-year fixed rates to 3.45 per cent, where borrowers are taking on loans of up to 80 per cent of the value of a property.

AIB also said that it is doubling the rate on its one-year fixed-term deposit product to 0.5 per cent for customers with deposit balances of greater than €15,000.

"We have a fundamental misunderstanding of our housing need."

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The ECB has hiked its deposit rate from minus 0.5 per cent to 1.5 per cent since July, while its main lending rate has moved from zero to 2 per cent. It is on track to increase rates again next month.

AIB moved late last month to raise its full-year net interest income growth forecast to 15 per cent — from 10 per cent, previously — on the back of rising central bank rates. The main uplift has come from the bank no longer being charged negative rates for the almost €40 billion of excess deposits it is currently storing with the European Central Bank.

The bank is set to unveil new medium-term financial goals next Friday. Davy analyst Diarmaid Sheridan said he expects AIB to raise its key profit returns target to 12 per cent of the tangible equity shareholders hold in the business. Its current returns target is 9 per cent. The bank had previously said that it expects to raise this profitability target.

Elsewhere among the remaining active mainstream banks, Bank of Ireland raised its fixed rates for new customers two weeks ago by 0.25 of a percentage point, while Permanent TSB moved last week to increase its fixed rates by an average of 0.45 of a point.

Ulster Bank, which is leaving the market in the Republic, this week announced a three-quarter point increase in fixed mortgage interest rates.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times