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Friday 22 November 2019

Will others follow PTSB rate hike? Have a guess

THIS week Permanent TSB announced that it was increasing its variable mortgage rate by another 0.16pc to 4.5pc. The rate hike will cost a homeowner with a €200,000 mortgage another €17 a month.

So why, at a time when mort-gage arrears are at crisis levels (with a third of all home loans either in arrears and/or having been restructured) is the Permanent pushing up its variable rate?

Because it can.

Permanent TSB's decision to hike its variable mortgage rate yet again demonstrates the almost complete absence of competition in the Irish banking market.

Before the Irish banking system effectively went bust in 2008 there were at least eight lenders active in the mortgage market; AIB, Bank of Ireland, Ulster Bank, Danske, Halifax, KBC, EBS and Irish Nationwide.

LENDING

From eight mortgage lenders in 2008 there are now just four. And they're not doing very much lending. Last year, the Irish banks lent fewer than 15,000 new mortgages with a combined value of just €2.5bn, down from a peak of €40bn in 2006.

And that four now looks like it might be about to become three. Despite repeated protestations to the contrary, it is clear that RBS, the troubled bank that owns Ulster Bank, wants to be shot of its Irish subsidiary. It's not hard to see why. Since 2008 the British government has had to pump £45bn (€55bn) into RBS. A third of this amount, over €18bn, has gone into Ulster Bank.

With the British government desperate to offload some of its 81pc stake in RBS ahead of next year's general election, sorting out the problems at Ulster Bank has become absolutely vital. RBS is now seeking to sell a majority stake in Ulster Bank, which would finally get the troubled Irish subsidiary off its balance sheet and ease a sale of some of the British government's RBS shareholding.

The end-game at Ulster Bank is merely the latest stage in what could best be described as Ireland's hidden banking crisis.

FOREIGN

As we all know to our cost the Irish government has had to pump €64bn into the Irish-owned banks. What is less well-understood is that the Irish operations of the foreign-owned banks have also required enormous dig-outs.

As well as the €18bn that has gone into Ulster Bank, Danske has written off over €3bn in bad loans while Lloyds, the parent of Halifax and Bank of Scotland (Ireland) – which exited Ireland in 2010 – had written off £4.8bn (€5.8bn) of Irish loans by 2012.

Add it all up and the Irish bust has cost the foreign-owned banks well over €30bn, bringing the total cost of the Irish banking collapse to almost €100bn and rising.

The good news for Irish taxpayers is that they haven't had to foot the bill for the foreign-owned banks' losses. The bad news is that, chastened by these enormous losses, the foreign-owned banks are exiting the Irish market.

Permanent TSB has been able to exploit the lack of competition...with RBS seemingly on its way out of Ireland will any of the other remaining banks be tempted to follow the Permanent's dreadful example?

Take one guess.

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