Bank of Ireland not going to lower its variable mortgage rates

http://www.irishexaminer.com/business/bank-of-ireland-defends-rates-as-profits-climb-345808.html


"However, he[Richie Boucher] indicated the bank would not be significantly lowering its mortgage rates any time soon. He said it offered competitive fixed-rate mortgages. Critics have said Irish banks charge some of the highest mortgage interest rates in the eurozone.

Mr Boucher defended the BoI rates, saying the costs of funds were more expensive than other eurozone banks were able to tap.

“We have had some mortgage write backs, but our loss experience in Irish mortgages has been very different from a European experience, and you have to take those factors into consideration.

“So, one must be careful about the use of selective facts. The facts are the cost of money to this bank, in this market, and our own loss experience and what that actually translates into a net margin for ourselves” has to be taken into play, he said."

'Our own loss experience' translates presumably as BofI have had significant loss in the Irish market and current customers have to pay for that. Basically it's factored into the current mortgage interest rates. Sounds also like 'cost of money' is also higher, presumably based on Ireland being more risky and they rare still working their way thru all the bad loans.

Bronte,

The interest rate margins on Bank Of Ireland SVR mortgages more than adequately takes cognisance of the increase bank cost of funds for operating in Ireland, what Bank of Ireland are doing is profiteering on the back of SVR customer whom cannot change to another provider, because they are in negative equity and there is no effective competition within the Irish marketplace. Look at BOI's latest results: their NII ( net interest margin, profitability to the lay person ) increase and the BCOF ( bank cost of funds ) decreased.

So basically Mr Boucher is giving the two fingers to the Government and indeed his trapped SVR mortgage borrowers.

He doesn't answer to the government, he answers to the shareholders. If the government wants to make him they can. He's called their bluff. And he has won.

Bronte,

I think the Government still has a substantial holding of preference shares in BOI, and a 14% holding in ordinary shares. If Mr Boucher annoys Mr Noonan enough there are many ways the Government can skin a cat ( that being BOI ) and Mr Boucher knows this.

Noonan is going to do nothing but talk bull to get the election in the bag. Look at the current madness of a spending spree offers. Crazy stuff when everything is getting back on track.

Bronte,

The political animal is a most dangerous animal, if people contact their local representatives like Brendan Burgess advised them to do, this will most definitely increase pressure on Mr Noonan to act. With an election looming, I'd rather spar with a great white in the ocean, than play chicken with a politican, who, at the stroke of a pen, could introduce a cap on variable rates mortgages ( not a bad thing ). All politicians want to be re elected and stay in Governmnet.

Descart said:

Bronte,

The interest rate margins on Bank Of Ireland SVR mortgages more than adequately takes cognisance of the increase bank cost of funds for operating in Ireland, what Bank of Ireland are doing is profiteering on the back of SVR customer whom cannot change to another provider, because they are in negative equity and there is no effective competition within the Irish marketplace. Look at BOI's latest results: their NII ( net interest margin, profitability to the lay person ) increase and the BCOF ( bank cost of funds ) decreased.

So basically Mr Boucher is giving the two fingers to the Government and indeed his trapped SVR mortgage borrowers.

Click to expand...

A bank's net interest margin (NIM) is certainly an important performance indicator but it does not equate to profitability as suggested. A bank's NIM is simply a measure of the difference between the interest income generated by a bank and the amount of interest paid out to its creditors (depositors and bondholders), relative to the amount of its (interest-earning) assets.

A bank's NIM tells you nothing about the performance of a bank's loan books, its cost of capital or its operating costs. It is a measure of the income generating capacity of a bank's core assets - not its profitability.

Also, again contrary to what is stated above, BOI's NIM (which is actually relatively modest by international standards) did not increase during the first half of 2015 - it actually feel marginally (to 2.17% in the most recent quarter as against an average of 2.21% for the first half of the year as a whole). BOI's profitability would certainly appear to be improving but this is largely due to a downward structural shift in impairment charges (due to an improving economy and higher property prices) and not an improved NIM trajectory.

Having said all that, I would certainly agree that Mr Boucher very clearly has no intention of reducing BOI's SVR in the near term and there is no realistic prospect at this stage that he will be forced to do so.

Sarenco,

Yet again, splitting hairs, you know that NIM is an important performance indicator to the profitability of a company. The three grading agencies use it as an indicator of such.

Meaning and definition of Net Interest Margin

The net Interest margin can be expressed as a performance metric that examines the success of a firm’s investment decisions as contrasted to its debt situations. A negative Net Interest Margin indicates that the firm was unable to make an optimal decision, as interest expenses were higher than the amount of returns produced by investments. Thus, in calculating the Net Interest Margin, financial stability is a constant concern.



Applications of Net Interest Margin

The use of net interest margin is helpful in tracking the profitability of a bank’s investing and lending activities over a specific course of time. Besides, a period end balance sheet, average balance sheet published by the banks indicating the breakdown of bank’s loans, deposits, investments, and borrowed funds, and their related interest rates provides more insight to investors seeking for more info on the fluctuation of Net Interest Margin.


I do not see any point in your attempt to undermine my post, when again you are incorrect, maybe, it's more a reflection on your personality flaws.

I specifically said NIM was an important performance indicator! Do you ever actually read other people's posts?

I happen to believe it is important to try to be as accurate as possible when posting. Saying NIM is "profitability to the lay person" is simply incorrect and it is important, in my opinion, to understand why a bank is profitable and why it is not in the context of this discussion. Misrepresenting (knowingly or otherwise) the factual position does not advance your argument.

I understand what you are saying perfectly, there is a difference between profitability and being profitable which a lay person may be confused with. I do not have an argument with regard to this thread, only an opinion.

No, that is not what I said. There is a difference between a bank's NIM and its profitability (or being profitable if you prefer).

As I stated above, NIM is an important performance metric but it is not the only metric of relevance in assessing a bank's financial performance or its prospects.

In any event, BOI's NIM fell over the course of H1 2015 - it didn't increase as suggested.

I happen to agree that a statutory cap on variable rates that relates to average new lending rates should be introduced to protect borrowers that are not in a position to switch lenders but I would be strongly opposed to introducing legislation that vests power in an official of the State (elected or otherwise) to set rates (within certain parameters or otherwise).

Then how do you envisage applying a statutory cap on variable rates without involving the legislative ?

I don't, that's why I called it a statutory cap. All statutes are enacted by the legislature.

My suggestion is to introduce a cap equivalent to 125% of the average new lending rate and I have outlined my logic in this regard in various other threads.

great idea

I see BofI are seemingly able to pay back debt early. Good news for taxpayers I guess.