It was odd that during an Oireachtas committee’s questioning of Permanent TSB chief executive Jeremy Masding, for three hours last week, that the bank’s €4 billion bailout with public money was only mentioned twice.
One reference came from Independent TD Stephen Donnelly, a member of the Oireachtas finance committee: “The people of Ireland made €4 billion available to this same institution as part of the recapitalisation and Mr Masding has admitted that not one euro of that amount has been forgiven for borrowers. I recognise that he is citing fiduciary responsibility but I do not think that is acceptable.”
The meeting was dominated by the pressure being put on customers by the decision by the bank, once the country’s biggest mortgage lender, to maintain the standard variable rate on home loans at the higher end of the market.
While Masding was being questioned, International Monetary Fund deputy director Ajai Chopra was speaking, in another part of Dublin, about the challenges facing the country. He talked about how the Irish banks had to regain profitability to sustain new lending.
A view expressed at the Oireachtas committee was that the €4 billion injected into Permanent TSB has created an obligation on the bank to reduce interest rates to what would be uneconomic levels. There was no discussion around whether that money would be recovered.
This, in effect, suggests that the problems of 74,000 customers at Permanent TSB whose mortgages are on variable rates – the only borrowers whose rates can be adjusted – outweighs the concerns of more than 2.2 million PAYE and income tax payers footing the bill to bail out Permanent TSB.
It was argued that the high rates were increasing the level of arrears and the capital cost of the bank but Masding rejected this.
It is important to protect the interests of the 74,000 customers but surely the prospect of the State recouping some or all of the €4 billion should be front and centre in any questioning by an Oireachtas oversight committee?
It is a sad fact of the fragile state of Irish banking that lending rates must rise – or costs of raising money by the banks must fall sharply (but this is not going to happen any time soon) – if the banks are to return to full health.
And full health in this scenario means profits.
The difficulty for the banks, most of which are State owned, is that “profit” has become a dirty word in banking given its recent pre-crisis association with pay and bonuses. But it should have a new association – the recovery of some of the billions of euro injected into the banks. Read more.
