Deputy Daly challenges Chairman of AIB over raising interest rates

Deputy Jim Daly: I appreciate the past is not the responsibility of many of the witnesses present in many cases and they cannot answer for it. However, there are many concerns and these are primarily day-to-day operational matters I wish to raise. This comes from evidence from a number of constituents and from dealing with a number of mortgage brokers in my constituency. I phoned around to ask about their experiences. Those responses are best summed up by one mortgage broker who claimed the experience of dealing with AIB to date was diabolical, which is a very damning reflection on the present as opposed to the past.

I ask Mr. Hodgkinson to comment on people switching to pay interest only. When people apply to pay interest only, punitive rates are being applied and the banks insist on increasing the interest rate. This is true for many SMEs that have idle commercial properties for which they have no tenants.

Has AIB changed its lending criteria in the past five years or is it just enforcing the existing criteria more stringently? Does AIB have a policy actively to get rid of overdrafts and take them from people who have had such a facility for years? I am particularly homing in on SMEs, which are experiencing considerable difficulty with overdrafts.

Is it true that AIB is actively recruiting graduates as we speak even though there are plans to let 2,000 people go? I am informed that the bank is recruiting graduates. I am also informed that it is taking up to six months for people to get seasonal increases in their overdrafts. I am aware of one SME – I can give times, dates and other information – which was on interest only and offered to pay capital as well as interest. The bank insisted on going from 4.25% to 6.275% when the company was also paying capital. These sound extraordinary experiences for people dealing with AIB.

When SMEs are approved for leasing for agricultural equipment or machinery, the rates are 12% or 13%. There seems to be a lack of competition in the leasing area, which is causing problems for businesses. We are all aware of the role SMEs will play in getting the economy back and it is crucial that AIB plays its part to support these businesses.
Mr. David Hodgkinson: AIB is a work in progress. I absolutely accept that we continue to have a number of issues and we have not served customers as well as we need to in the future. The restructuring of the top team in AIB has literally been happening in the past few months. The injection of resources into the areas where it is needed on the customer front has also begun and continues to happen but it is a pretty new phenomenon. I offer my sincere regrets to people who have not been well treated in this process and invite them to come back and talk to us. We are trying to improve our game and we would like to engage with them.

I will invite Mr. O’Keeffe to contribute on the question of interest-only rates, lending criteria and changes in respect of mortgages. I will speak on overdrafts. I will ask our small business expert to talk about the agriculture sector.

Mr. Jim O’Keeffe: Deputy Daly mentioned interest-only loans. Was he referring to SME customers in particular? I am unaware of the issue on the mortgage side.
Deputy Jim Daly: No, it relates primarily to the SME sector.

Mr. John Webb: In relation to the SME sector, where a customer seeks an interest-only facility, we look at what is a sustainable interest rate for the customer to pay to make sure he or she can pay it in the context of the cashflow going through his or her business.

As a bank the reality facing us is that our cost of funding has increased substantially and we have to look at recovering the cost of funding in order to remain viable.

On the question of overdrafts, it is the case that we did revise our lending policies and processing criteria earlier this year in response to the deficient policies and processes that existed in the past. To some extent, as has been pointed out, the pendulum may have gone too far. We are actively reviewing our lending practices and processes at the moment to make sure we right-size them in the context of ensuring credit is available to businesses while at the same time protecting the taxpayers’ interest and investment in the bank.

The agriculture sector is very important to AIB. We account for 36% of the borrowing market in that respect. We have extended more than €1.6 billion in finance to agribusiness. If one takes the EIB facilities which we had earlier this year – of a €250 million tranche, 27% was extended to the farming sector. We believe this is an area of growth for us and given the dynamics facing the economy at the moment and the challenges facing the bank we are keen to capitalise on the opportunities for growth. Therefore, the agriculture sector is one area we are keen to support.

Deputy Jim Daly: I asked a question specifically about the rates which are in excess of 12% or 13% for leasing.
Mr. John Webb: I will have to go back and look at the leasing side in terms of the rates. We have reorganised our leasing business within the bank. We are carrying out a strategic review of the business to see how we are faced into the market at the moment, whether we are competitive and if we are serving customers appropriately.

Deputy Jim Daly: Is there an issue with competition? Is the limited competition that exists a reason for the high rates in the area of leasing?

Mr. John Webb: I do not think so. It is not the case that our pricing policy is informed by the lack of competition in the market. We are not increasing rates because we perceive there to be a lack of competition.