Brendan Burgess
Founder
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On 16 May 2016, a bill entitled the Central Bank (Variable Rate Mortgages) Bill 2016 was initiated in the
Dail (the lower house of the Irish legislature) which, if passed into law by the Oireachtas, would specifically
authorise the Central Bank in prescribed circumstances to impose a maximum SVR on PDH mortgage
loans made by AIB. The bill passed through the First stage and the Second stage of the Dail in May 2016
and has progressed to committee stage.
The bill proposes to permit the Central Bank to carry out assessments on the state of competition in the
market for PDH mortgage loans and upon completion of an assessment, the bill will permit the Central
Bank to form a conclusion as to whether the state of competition in the market for PDH mortgage loans is
such that a ‘‘market failure’’ exists. A ‘‘market failure’’ exists where a lender is, or lenders are, charging a
variable interest rate or variable interest rates for PDH mortgage loans which are higher than what the
Central Bank considers can be reasonably and objectively justified. The ECB has identified a number of
concerns it has with the bill in an ‘‘Opinion of the European Central Bank of 17 November 2016 on the
conferral of powers on the Central Bank of Ireland to assess competition in the market for mortgage loans
and to issue lenders with directions on variable interest rates (CON/2016/54)’’. The Central Bank has also
expressed concerns about the bill to a meeting of the Joint Committee on Finance, Public Expenditure and
Reform, and Taoiseach on 8 December 2016. (Source: Oireachtas website). In a paper entitled ‘Central
Bank (Variable Rate Mortgages) Bill 2016—[Private Members Bill]—Observations of the Competition and
Consumer Protection Commission to the Joint Committee on Finance, Public Expenditure and Reform,
and Taoiseach’ (dated 29 March 2017 on the CCPC’s website), the CCPC has stated that it has serious
concerns about the bill’s proposals and that the CCPC believes that, if enacted, the bill would likely limit
competition in the market for PDH mortgage loans.
If the bill is passed into law in its current form (or if other similar rules or regulations are introduced),
AIB’s SVR PDH mortgages, which form a significant portion of its mortgage portfolio, may become
subject to further supervision and scrutiny by the Central Bank. An increasing regulatory focus on AIB’s
SVR mortgages to customers or an alignment of the SVR with those charged by lenders in other Eurozone
markets may also result in a reduction in AIB’s interest income from SVR mortgages.
Any further supervision and scrutiny in relation to AIB’s loan book could result in a reduction in AIB’s
level of lending, net interest income and net interest margin and/or increased operational costs, any of
which in turn could have a material adverse effect on AIB’s business, financial condition, results of
operations and prospects.
On 16 May 2016, a bill entitled the Central Bank (Variable Rate Mortgages) Bill 2016 was initiated in the
Dail (the lower house of the Irish legislature) which, if passed into law by the Oireachtas, would specifically
authorise the Central Bank in prescribed circumstances to impose a maximum SVR on PDH mortgage
loans made by AIB. The bill passed through the First stage and the Second stage of the Dail in May 2016
and has progressed to committee stage.
The bill proposes to permit the Central Bank to carry out assessments on the state of competition in the
market for PDH mortgage loans and upon completion of an assessment, the bill will permit the Central
Bank to form a conclusion as to whether the state of competition in the market for PDH mortgage loans is
such that a ‘‘market failure’’ exists. A ‘‘market failure’’ exists where a lender is, or lenders are, charging a
variable interest rate or variable interest rates for PDH mortgage loans which are higher than what the
Central Bank considers can be reasonably and objectively justified. The ECB has identified a number of
concerns it has with the bill in an ‘‘Opinion of the European Central Bank of 17 November 2016 on the
conferral of powers on the Central Bank of Ireland to assess competition in the market for mortgage loans
and to issue lenders with directions on variable interest rates (CON/2016/54)’’. The Central Bank has also
expressed concerns about the bill to a meeting of the Joint Committee on Finance, Public Expenditure and
Reform, and Taoiseach on 8 December 2016. (Source: Oireachtas website). In a paper entitled ‘Central
Bank (Variable Rate Mortgages) Bill 2016—[Private Members Bill]—Observations of the Competition and
Consumer Protection Commission to the Joint Committee on Finance, Public Expenditure and Reform,
and Taoiseach’ (dated 29 March 2017 on the CCPC’s website), the CCPC has stated that it has serious
concerns about the bill’s proposals and that the CCPC believes that, if enacted, the bill would likely limit
competition in the market for PDH mortgage loans.
If the bill is passed into law in its current form (or if other similar rules or regulations are introduced),
AIB’s SVR PDH mortgages, which form a significant portion of its mortgage portfolio, may become
subject to further supervision and scrutiny by the Central Bank. An increasing regulatory focus on AIB’s
SVR mortgages to customers or an alignment of the SVR with those charged by lenders in other Eurozone
markets may also result in a reduction in AIB’s interest income from SVR mortgages.
Any further supervision and scrutiny in relation to AIB’s loan book could result in a reduction in AIB’s
level of lending, net interest income and net interest margin and/or increased operational costs, any of
which in turn could have a material adverse effect on AIB’s business, financial condition, results of
operations and prospects.
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