AIB defends ‘miserable’ deposit rates and says increases ‘on the agenda’

Higher deposit interest rates are “on the agenda” at AIB, the bank said on Thursday, after it was criticised at its annual general meeting for offering “miserable” rates to savers.

AIB chief executive Colin Hunt defended the bank’s decision not to pass on the full extent of the recent string of European Central Bank (ECB) interest rate increases to savers, noting that it had also held back from passing on the full extent of these hikes to mortgage borrowers.

“We are, as I said earlier, deeply conscious of the fact that we are a pillar financial institution in this country and we have a very broad array of customers, and we had to be conscious of our obligations,” Mr Hunt said. “We very deliberately took a cautious, conservative, measured, considered, staged approach to our response to how interest rates were evolving at a European level. That said, we continue to keep our product range and the pricing of that product range under review, and I look forward to having more to say on that in the coming months.”

The agm took place shortly before the European Central Bank (ECB) announced a quarter-point increase in its main interest rates. Its deposit rate now stands at 3.25 per cent and its lending rate at 3.75 per cent. Before it began hiking rates in July 2022, these rates stood at minus -0.5 per cent and 0 per cent respectively.

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One shareholder present at the meeting in Dublin told the bank it was “shortchanging” depositors in light of the cycle of ECB rate hikes, while a second shareholder queried why Irish banks could not offer deposit rates of 3.5 per cent as banks in some other euro zone countries do.

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“We have tried to take a very measured, balanced approach to this,” said AIB chairman Jim Pettigrew, adding that the bank was aware of the impact the rising cost-of-living was having on its customers. While the bank “cannot today just wave a magic wand” and announce an increase in deposit rates, such increases are “on our agenda”.

The shareholder who described the bank’s deposit rates as “miserable” quoted from an article in The Irish Times by Fiona Reddan that outlined how Irish savers were losing out “not just a bit, but a lot” because the real value of their savings has declined amid high inflation. He also contrasted AIB’s treatment of savers with its substantial write-down of debt owed by former Kilkenny hurler DJ Carey.

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The second shareholder said it was “a crazy situation we are facing as Irish consumers, as Irish savers”, and took issue with Mr Hunt’s use of the word “shock” in his reference to a “very significant interest rate shock across the euro zone”, arguing that it was not a shock as “the writing had been on the wall” for central banks with respect to interest rates.

Mr Hunt said the bank’s first step last July had been to eliminate the negative interest rates that applied to customers with €1 million or more on deposit with the bank. AIB, which is 53.4 per cent owned by the State, then waited until October to increase the interest rates on the fixed-rate mortgages it offers to borrowers, he said.

In February it announced its first hike to variable mortgage rates. At this point it also increased the rates offered on certain regular saver products to 1 per cent, up from 0.1 per cent, and also started paying interest on personal and business demand product accounts at a rate of 0.1 per cent.

After the meeting Mr Hunt said it was “fair” to describe the succession of “very rapid” rate hikes taking place over a “reasonably short period of time” after a period for prolonged interest rate stability as an economic shock.

Asked about the impact of the cost-of-living crisis, the bank said it was not seeing any increase in problem loans that would “give us cause for concern across our portfolio”, but would continue to remain “extremely vigilant”.