PERMANENT TSB has said that it has no immediate plans to raise interest rates again on standard variable rate mortgages but it would be “irresponsible and disingenuous” to say it was ruling out future rate increases.
David Guinane, chief executive of the bank, told the Joint Oireachtas Committee on Finance and the Public Service that Permanent TSB, the banking division of Irish Life Permanent (ILP), that its interest rates were under review on a daily or weekly basis.
The bank raised its standard variable rate by 0.5 of a percentage point last July due to rising bad loans and higher funding costs, a move that attracted considerable public and political criticism.
Mr Guinane said that if loan impairments continued at the same rate and funding costs remained high, interest rate increases needed to be considered.
He said there had been “no serious discussions” with the Minister for Finance on the bank’s involvement in a merger with the country’s two building societies, EBS and Irish Nationwide, in the so-called “third force” in banking to compete against the two main banks, Bank of Ireland and AIB.
There had been some preliminary discussions of a speculative nature with Department of Finance officials, he said, and he hoped Permanent TSB would be “a leading player in a third force”.
The future of the banking industry would be dictated by Nama (National Asset Management Agency), said Mr Guinane, as smaller lenders sell large parts of their balance sheets. The bank is not participating in Nama as it avoided development lending.
Permanent TSB needed no capital from the Government, said Mr Guinane, but EBS and Irish Nationwide will require “significant support” once a combined €9 billion in loans are transferred to Nama.
Mr Guinane said that this capital would need to be injected into the two building societies “prior to any engagement with ourselves”.
He said that securing funding from sources other than the European Central Bank (ECB) was “incredibly challenging”. Some 27 per cent of ILP’s funding was sourced from the ECB, finance director David McCarthy told the committee. This stands at about €10.9 billion at present, he said.
Mr McCarthy said that the group could access another €2 billion to €3 billion from the ECB but had no plans to draw on this.
Some 72,000 mortgages of Permanent TSB’s 190,000 mortgages – 38 per cent of its customers – were affected by the half-point increase on its standard variable rate, Mr Guinane said, and this led to an average increase of €14.75 on their monthly repayments.
The average interest rate on Irish mortgages of 3.19 per cent compared with 4.2 per cent in the UK, he said, and it was hard to see how Irish mortgage rates can remain lower for much longer.
Permanent TSB sold 100 per cent mortgages to 8,000 customers, the committee was told.
Mr Guinane said that 6,000 customers or 3.3 per cent of the bank’s customer base were in arrears of three months or more.
Permanent TSB was approving 60 per cent of mortgage applications, but just 20 per cent were being drawn down, he said.
