JOINT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE debate -
Wednesday, 25 Nov 2009

Interest Premiums: Discussion with Bank of Ireland.

Chairman

The discussion is on the interest premium over cost of funds banks will charge to restore profitability. I welcome Mr. Richie Boucher, chief executive officer, Bank of Ireland, Mr. Pat Molloy, chairman, Bank of Ireland, and Mr. Des Crowley, chief executive officer, retail.

Before commencing I wish to advise everyone that we will receive a presentation which will be followed by a question and answer session. I advise members, witnesses and those in the Visitor's Gallery to remember to switch on their mobile phones when they leave the meeting.

I draw attention to the fact that members of the committee have absolute privilege but this same privilege does not apply to witnesses appearing before the committee. The committee cannot guarantee any level of privilege to witnesses appearing before it. Further, under the salient rules of the Chair, members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.

Mr. Pat Molloy

On behalf of the Bank of Ireland, I thank the Chairman, Vice Chairman and members of the joint committee for the opportunity they have given to me, Richie Boucher and Des Crowley to meet with them today. We sent the committee a submission in advance but if I may I will touch on some of the key points in that submission and bring members up to date on the current position in Bank of Ireland. In addition to addressing the question posed in the committee's letter of invitation, I will also provide some detail on our business activity in support of personal and business customers at this difficult time, a subject that I know is of considerable interest and concern to public representatives.

On context, Bank of Ireland enjoys very good relations with the vast majority of its customers. This is a consequence of building and developing relationships over many years, and supporting our customers appropriately in these difficult times will mean we can all benefit from better economic times that will arise in future.

Bank of Ireland sincerely appreciates the significant support of the Irish Government and taxpayer in stabilising the financial sector in Ireland throughout this turbulent period. We are also acutely aware of the depth of public feeling about the banks at this time. We are working hard to learn the lessons from the past and to rebuild damaged relationships with all of our stakeholders. We know we have much to do to repair these relationships but the committee can be assured we are determined to do it.

Our current business priorities are, first, to support our customers responsibly through these difficult times; second, to fund our balance sheet; third, to strengthen our capital; fourth, to manage actively our credit risks; and, fifth, to manage rigorously our costs. I believe that by successfully dealing with these priorities we will stabilise the bank, rebuild customer trust and make a very strong contribution to this economy.

One of our key current priorities is engagement with the National Asset Management Agency. We are committed to doing this in a constructive manner with a view to achieving the best outcome for all parties concerned. NAMA will support a functioning banking system and will aid economic recovery in Ireland through providing increased certainty on asset quality and impairment charges, reducing risk weighted assets on the banks' balance sheets, improving liquidity and underpinning credit availability in the country.

With regard to pricing, the committee has raised a specific query regarding interest pricing before and after the transfer of assets to NAMA. In our interim statement for the six months to 30 September last, which we issued on 4 November, Bank of Ireland advised the market that its net interest margin had fallen by ten basis points compared to the prior year period, that is, it has fallen to 1.61%, and that this net interest margin was likely to decline further by year end. This primarily reflected intense competition for deposits and the cost of extending the term of the bank's wholesale funding, notwithstanding a fall in the quantum of this wholesale funding.

In recent months, that is, since approximately July of this year, easing general international conditions and improved international perceptions of Irish Government risk and of Irish banks' risk, partially reflecting the market's anticipation of NAMA, has given Bank of Ireland improved access to international debt markets. Bank of Ireland has extended the maturity profile of its funding, including undertaking issuances which do not rely on the Government guarantee. This has increased the market's confidence that Bank of Ireland can come off the Government guarantee over time.

We anticipate that the liquidity which NAMA will provide to the Irish banking system as a whole should improve the funding position of banks and the cost of short-term money to banks, albeit slightly offset in cost-benefit terms for Bank of Ireland by the desire of Bank of Ireland to continue to extend the maturity of its debt and undertake non-Government guaranteed issuances into the future.

I emphasise that despite the difficult liquidity conditions of earlier this year, Bank of Ireland has not restricted the availability of funding to its Irish businesses and has provided very competitively priced products, particularly for owner occupier mortgages and small and medium sized business customers. This has been made possible by the difficult decisions Bank of Ireland has made and implemented to close for new business and to place into rundown certain international businesses which have combined loan assets of €37 billion.

Bank of Ireland has reaffirmed that its strategic bias is to Ireland and that it wishes to retain its existing customers and win new customers. This remains the case going forward. This strategic imperative can be achieved only by making credit available to our customers, with that credit being competitively priced and supported by efficient good service and a strong supporting infrastructure. We reiterate that Bank of Ireland has made credit available to its Irish customers at very competitive pricing during the difficult liquidity conditions of earlier this year and will continue to do so.

On the progress we are making against our business priorities, with the support of the Irish State and taxpayers, our customers, our investors and staff, we have made significant progress across each of the priorities I set out earlier. The first of these is the issue of supporting our customers. Bank of Ireland has a significant stake in, and dependency on, the Irish economy. Our participation in the market here, particularly in the SME and mortgage markets, is critical to our future and we remain firmly committed to supporting our current and future customers through these difficult and challenging times. It is and has been our policy to channel the majority of the group's available lending capacity to our Irish consumer, SME and corporate banking franchises. During the first nine months of 2009, over €3.6 billion in new SME and mortgage lending was drawn down by Bank of Ireland customers.

With respect to our commitment to SMEs, we continue to promote the availability of both advice and credit, reinforcing to customers and potential customers the message that we remain open for business and committed to supporting business recovery. This year we have run a number of nationwide campaigns to show our support for the SME sector, including a National Enterprise Week in May and a "show your business" week in October. These have attracted very positive feedback from the participating companies. I am sure many Members of the Dáil and Seanad will be aware of these events taking place in their local constituencies and areas. We are running a further "show your business" week in December where businesses will have the opportunity to promote their activities in our local branches. I will ensure that details are provided to public representatives, and we would welcome them to come along and see for themselves the many vibrant businesses we are supporting.

Nonetheless, SMEs continue to face significant trading difficulties. The third quarterly trends survey for the year undertaken by the Irish Small and Medium Enterprises Association, ISME, suggests that the business environment remains challenging. The most significant issue faced by businesses in the current climate revolves around having sufficient cash flow to sustain their businesses. Bank of Ireland's commitment to the SME sector remains strong. Our focus is on continued support for customers through new lending, overdraft sanctions and renewals.

Through our 800 specialised business bankers in 248 full-time branches and 29 other locations, we are supporting well managed and viable businesses in the following ways. We have advanced €2.1 billion in branch lending to SMEs in the first nine months of the year. Our working capital facilities and limits to SMEs are up 18% since last year, with utilisation at approximately 53%. We review approximately 6,000 loan applications each month for SMEs, of which almost 80% are approved. We have financed more than 1,000 start-up and early stage businesses this year. More than 15,000 new business current accounts have been opened. We launched a number of specific business and environmental funds in the past year totalling €550 million in value, and moneys from these funds remain available for drawdown by SMEs. We have arranged a €100 million European investment bank facility to lend on to SMEs for specified investment purposes. To date we have approved more than €37 million for customers under this facility and are actively promoting its availability.

We have put comprehensive structures in place to support customers experiencing significantly more challenging times. These include dedicated and experienced relationship managers in our branch network and seminars focused on support and mentoring. A €26 million venture capital fund was recently announced in conjunction with Enterprise Ireland and the University of Limerick. We have been working with Enterprise Ireland on a number of other initiatives, including secondments of its staff to Bank of Ireland and vice versa.

Bank of Ireland believes that a vibrant and sustainable SME sector is vital to the Irish economy. I can assure the committee that we are firmly committed to supporting our current and potential customers in that sector through these very challenging times.

Turning to mortgage customers, although overall market demand remains muted, the past few months have seen some positive signs of uplift, for example, we have seen an improvement in overall applications and drawdown trends compared with previous periods. Through mortgage focused advisers, advertising and local activity in our branches, we are promoting mortgage availability, in particular for first-time buyers, and we are supporting our customers. We have lent over €1.5 billion in new mortgages in the first nine months of 2009, with €475 million of this going to first-time buyers. We are currently approving over 350 mortgages per week. A total of €750 million of our €1 billion first-time buyers, FTB, fund has been approved for customers, and we expect to announce an additional FTB fund of a further €1 billion shortly. We have recently launched a campaign aimed at the trader-up buyer segment, which members might have seen. Given current market uncertainties and their impact on customer decisions, actual drawdowns do not yet match the level of application and approval activity I have mentioned. However, we have seen a more positive drawdown trend in recent months.

Bank of Ireland fully supports and adheres to the arrangements that have been put in place to help and assist customers in financial difficulty, including the Financial Regulator code of conduct on mortgage arrears and a joint protocol with the Money Advice and Budgeting Service, MABS, which covers the area of debt management. When a mutually acceptable arrangement is entered into with a mortgage customer and it is maintained, subject to ongoing reviews, legal proceedings will not be initiated as long as the agreement is maintained. Bank of Ireland always encourages customers to contact the bank at the earliest opportunity, and we will work to complete a full financial review and identify and agree options available to individual customers given their particular circumstances.

With regard to our larger corporate customers, we have a corporate banking division which is actively involved in supporting and managing almost 400 customer relationships in Ireland, focusing on larger and mid-sized corporate transactions. We increased our financial support to existing customers by over 40% in the year ended 31 March 2009 and customer numbers increased by 10% during this time. We are receiving an increasing number of approaches from non-Bank of Ireland customers and are supporting these where the business and financial risks are deemed acceptable. In summary, Bank of Ireland is very much open for business — supporting our customers and aiding economic recovery across consumer, small business and corporate markets.

Our second strategic priority is to strengthen our capital; we are committed to building our capital ratios over the medium term in line with the changing norms for European retail and commercial banks. Our third priority is to rigorously manage our asset quality. We continue to actively manage our credit risks and have re-assigned many of our staff to the intensive management of our more challenged portfolios.

Our fourth priority is funding our balance sheet effectively. Funding conditions have improved and this has enabled us to strengthen our key balance sheet metrics. Our proportion of customer deposits to other funding has improved over the past six months despite intense competition in the market here. This, together with the lengthening of the maturity profile of our wholesale funding, has enabled us to reduce the quantum of our wholesale funding by €13 billion over the six months and to extend its maturity profile. We have large pools of contingent collateral standing at €43 billion at 30 September 2009, and our use of this contingent collateral to borrow from monetary authorities, representing €7 billion net at 30 September 2009, is approaching normalised levels.

We continue to manage our costs rigorously, which is the fifth and final priority, and to re-align our cost structure and cost base to an environment of lower levels of new business and activity. We have reduced remuneration and the number of people we employ across the group by 1,700 over the last 12 months. By March 2010 we will have reduced executive positions in the group by 20% from the number which existed 12 months ago.

The final item I wish to mention is our EU restructuring plan. The committee will be aware that under EU competition rules, there is an obligation to file a restructuring plan within six months of receiving state aid. Bank of Ireland filed its restructuring plan at the end of September. We emphasised initiatives being implemented outside Ireland to reduce our balance sheet by €37 billion, thereby increasing our capacity in the Irish market. We also emphasised our initiatives to manage our capital and move to a more normalised funding base. Over the life of the restructuring plan, we will eliminate our reliance on the Government deposit guarantee, repay the Government's €3.5 billion preference shares and pay €1.7 billion in preference share coupons and deposit guarantee fees, of which in excess of €400 million will be paid in our current financial year, leaving the State with a significant shareholding in a profitable, fundamentally sound bank supporting the Irish economy and competing actively in the Irish market. The processes and interactions surrounding the restructuring plan will take some months to conclude.

To summarise and conclude, the last 12 months have been very challenging for the group. However, the support of the Irish Government and taxpayer and our continuing focus on key priorities has brought greater stability to the bank. As we look ahead, our focus remains on these priorities and the clear goals that we have set ourselves for continuing to make progress against them. Bank of Ireland remains committed to supporting its personal and business customers. Our future is dependent on our customer base and on a recovering, vibrant Irish economy. Bank of Ireland is determined to play a very strong role in supporting its customers and in assisting the economy to recovery and future prosperity. I thank the committee for its attention.

Chairman

Thank you, Mr. Molloy, for your comprehensive presentation. Does Bank of Ireland intend to participate in the National Asset Management Agency, NAMA? Are there plans for an extraordinary general meeting, EGM, in the near future to proceed with NAMA?

Mr. Pat Molloy

We are working very closely with NAMA. The final decision on that will have to be taken by our shareholders, because this is described as a class one transaction. A transaction of that size requires their approval. We are planning in that direction but the final decision rests with the shareholders.

Chairman

Are there any plans for an EGM?

Mr. Pat Molloy

An EGM will be necessary, and there is a tight timeframe. We must make our decision within 60 days of the establishment date. I do not know if the establishment date has yet been set. The intention was that it might happen this week, although I cannot be sure of that. We have a 60-day window after that within which we must make our decision.

Chairman

Thank you. I call Deputy Bruton, who will be followed by Deputy Burton.

Deputy Richard Bruton

Traditionally, the banks had a reputation for what might be called austere frugality. In the last number of years that has been stripped back to reveal an appalling vista, where warnings were not heeded, basic rules of banking were ignored and obscene bonuses were being paid. The banking system was easily corrupted by the buccaneer banking which came into the Irish system. There were gross abuses, which are being defended by some as if no law was broken. The auditors and the boards did nothing to stop the runaway train. Risk appraisal appears to have been simply absent when the banks started to chase bubble gains in the marketplace.

The banking sector must understand that there is intense fury among ordinary people about what has happened to themselves and their prospects because of a bog standard property bubble that was fuelled by the banking system. Members of the public are in no mood to "suck it up", to use the Australian term. They believe that something must radically change but there is no sense among members of the public that anything is radically changing. Insiders are still being appointed and there has been no clean out of the boards. People who were in the credit risk committees and so forth are still telling us that the banks are strong and moving forward.

There is an intense cynicism about what is going on. I read all the Bank of Ireland data and I am sure there is a lot in it, but there is a sense that this is spin rather than reality. We are being told that decent businesses are having their terms renegotiated and must pay more for existing lines of credit. In addition, their overdraft limits are being curbed and any time a new loan is sought there are demands for securities that are totally different from what was there in the past. It is the classic story that the banks are there with an umbrella when the sun is shining, but when the rain comes they fold their umbrellas and go away.

At one level, the Bank of Ireland says it is shrinking its loan book and is intensely managing down risk. On the other hand, it is telling us that all of these worthy and bankable businesses are being facilitated in every way. We find it hard to square the circle. The bank is presenting such a positive spin on what is happening that it is just not credible.

Chairman

Before continuing, I wish to make a comment. This meeting was proposed by Deputy Fahey in order to discuss the interest premiums over the cost of funds the banks will charge to restore profitability. We cannot discuss the whole banking situation, otherwise we would be here forever.

Deputy Richard Bruton

The only reference we have to interest premiums is that the premium is down and the banks are getting less of an interest margin — ten basis points. We have not been told, now that NAMA is moving into place, whether we will see the cost of credit coming down, as a dividend to the public. No such commitment has been given here. People would expect, at a minimum, that there would be a dividend of better access and lower costs for taxpayers who are taking on their shoulders €54 billion worth of impaired banks. The bulk of the presentation has been making a case that there is no pressure on sound businesses coming from the banking sector, but that is simply not credible. We need a more honest exchange as to what difficulties the banking sector is encountering, what charges are being increased and how they are justified, as well as what charges are not increasing to ensure that bankable businesses continue. There is an expectation that no good business will fail for want of credit because the taxpayers have taken such a load on their shoulders. We have been around six cities as well as Athlone, a major town in the midlands, but we have not heard that.

We need a more honest "warts and all" exchange concerning businesses the banks are putting under pressure. What do the banks mean by managing a risk intensely? Who is included in that? Does that include farmers who are trying to save a crop and cannot get the capital to do it, as we have heard anecdotally? Does it include businesses which are not getting paid as quickly as before and which cannot get an extension of their working capital? The figures provided do not convey the actual reality. One can have working capital up by 18%, but demand may be up by 80%, so one is only meeting one fifth of the pressure on businesses. We need a more honest appraisal with real benchmarks as to how the boot is squeezing ordinary businesses and how we can try to relieve this pressure as a result of the State's attempt to support the banking sector. I see this as being predominantly spin with no mention of the pressures on businesses.

Mr. Pat Molloy

Perhaps I should pass this question to my two colleagues. Mr. Des Crowley, in particular, has direct responsibility for the banking business. The Deputy raised two very important issues: the cost of credit and its availability.

Mr. Richie Boucher

We have undoubtedly been shrinking our balance sheet. We confirmed that we would be doing it, the last time I appeared before this committee in December 2008. We have announced where we are shrinking our balance sheet. We have announced that businesses outside Ireland are being put into run-down. Those businesses account for €37 billion of our assets. Those are decisions that we in the Bank of Ireland have made. They are difficult decisions. Those were reasonable, profitable businesses and there have been consequences for our ultimate, long-term profitability and for the people who work in those businesses. So it is not contradictory for the Bank of Ireland to say that it has capacity to lend into Ireland, while it is shrinking its overall balance sheet. We retain certain businesses outside Ireland, but we are reshaping our business. We have made, and are committed to, those decisions.

The availability of liquidity to the banking system in Ireland from NAMA is important. One of our requirements and objectives as a bank is to reduce the reliance that we as a bank have on the Government guarantee. Part of the way we will do that is to issue longer-term debt outside the coverage of the guarantee. That is expensive, so it does cost us money. The cost of wholesale money to us is likely to increase. That is one of the reasons we are deliberately and particularly shrinking our requirement for wholesale money. We have brought it down by €13 billion in six months. That has been very important to us.

Part of Bank of Ireland's recovery and being a normalised bank is that we will extend the maturity profile. We reiterate that when we had a much more difficult liquidity situation than we have today, we continued to provide competitive pricing into this market. The shrinkage of our interest margin is primarily because of the decisions we have made not to rely on ECB funding, but to fund our balance sheet in a normalised, structured way and to pay the cost of that. We have not passed those costs on to our customers. For our private residents, mortgage holders and SME customers, every ECB rate cut was passed on despite the fact that we were paying up considerably in the markets. As liquidity comes in, we should see that the cost of money to the bank will alleviate short-term funding, but the medium cost of funding for banks has structurally changed. It is important for us as a bank to manage that process. The decisions on how we will do that is the shrinkage of the balance sheet. Bank of Ireland has publicly announced that this shrinkage is outside Ireland. The decisions that we have made are being implemented.

I will ask Mr. Des Crowley to talk about the support of our customers and the issues our customers face.

Mr. Des Crowley

Within Ireland, we are clearly mobilising our 11,000 people in their communities and in branches to talk to customers on a regular basis. As we said in the statement, we are dealing with 6,000 applications every month from small businesses, which is 72,000 in a year. We are dealing with 350 mortgage approvals every week. I acknowledge there is no doubt that businesses are under significant cash flow pressure. Indeed, a number of businesses are trying to figure out how to restructure themselves. We have asked our business bankers, the 800 people who have those skills, to be available to talk to those customers — both the existing customers of the bank and customers who were with other institutions — about how we would help them to restructure. We are doing that in a variety of ways, through the provision of overdraft facilities, term lending facilities, invoice discounting and asset finance — whatever the appropriate mechanisms are to help them restructure the business. We are doing those on competitive terms. As Mr. Boucher has said, we are passing on ECB reductions and are continuing to preserve that pricing matrix.

In the mortgage market, in our book, 97% of the customers are managing their way through at the moment. The key driver of stress is unemployment. We are helping about 600 people per month at the moment to restructure themselves through a variety of mechanisms. As members of the joint committee will know, under the subscription agreement we committed that we would not invoke any legal process or action for 12 months. We are, therefore, going through a series of discussions with customers about moratoriums on payments, interest only, reductions of annual payments and monthly payments. Our objective as a bank is to get as many of our customers through this difficult period as we can.

We are assiduously observing the business lending codes and the mortgage codes and any external review that have been carried out will confirm this. Our objective is to support viable commercial businesses and all consumers as best as we possibly can. That is our mantra and that is what we are trying to achieve. I acknowledge that there is significant pressure on businesses and consumers. The bank is committed to supporting existing and prospective customers as best it can.

Deputy Michael McGrath

I appreciate the Chairman's wish that we confine ourselves to making comments within the terms of reference outlined in the invitation to the representatives of the bank. However, Mr. Molloy took the opportunity to provide a broad overview of the issues affecting the bank and I would appreciate the opportunity to comment on a number of these.

Mr. Molloy indicated that it is the bank's intention to participate in NAMA. How much does Bank of Ireland expect to be paid in respect of the €15.5 billion worth of loans on its books? What does Mr. Molloy anticipate will be the haircut in respect of those loans and what impact will this have on the balance sheet of the bank? To what use will the bank put the funds received from NAMA through the issuing of bonds? How much of this money will be lent out into the economy? As far as we are concerned, NAMA was established in order that it would assist in restoring the flow of credit to the real economy. I am particularly interested in hearing Mr. Molloy's reply in respect of this matter. Does Mr. Molloy anticipate that the bank will require additional funding or capital? If so, will this be provided by the State or by international investors?

There might be a great temptation for Bank of Ireland and the other institutions participating in NAMA to refuse to restore credit to the property and development sector. This would not be in the best interests of the economy. What will be Bank of Ireland's approach with regard to lending in respect of viable projects in the property and development sector?

Mr. Pat Molloy

Mr. Boucher, who is more familiar with this matter, will deal with most of the Deputy's questions. However, I reiterate that either as an executive team or as a board, we have not decided or cannot decide that we are participating. We view NAMA in a very positive light and we consider it to be an important and appropriate initiative. However, our shareholders will eventually decide whether the bank participates. Mr. Boucher will reply in respect of the Deputy's questions on the extent of the haircut, how much we will lend out, the impact on our balance sheet — an extremely important matter — and the restoration of credit to the property sector.

Mr. Richie Boucher

In our management statement for the period 30 September to 4 November we advised the market that we did not have sufficient information to form a clear view on the price we would be paying for those loans. The Minister indicated that it would be approximately 30%. We applied various models to our own balance sheet as to what would be the impact of such a discount or certain factors thereof. Based on those models, we believe we will meet minimum regulatory capital requirements because the risk weighted assets will be removed from our balance sheets and we will take a hit. It should also be noted that in the case of some of those loans we have already booked and taken provisions. We have already assumed certain other provisions against those loans. We believe we can manage in this regard. We have informed the market that we will be looking to other sources to enhance our capital going forward. That will be important.

The money we will obtain will help ease some of the liquidity pressures in the overall system and also for Bank of Ireland. The relative amount of loans on Bank of Ireland's balance sheet that will transfer is proportionately less than the system's. This will be of assistance to the bank. In the past we have informed that committee that Bank of Ireland will primarily manage its balance sheet going forward in the context of shrinking its businesses outside Ireland.

Nevertheless, we see NAMA as being positive for the system as a whole and it will provide liquidity. Bank of Ireland's modelling, based on various assumptions with regard to what could be the discount, means that we can take the discounts that might be envisaged and still be in a position to meet the regulatory capital requirements. However, in the medium term we will be obliged to look to the level of capital that is appropriate. The level of capital we require is also proportionate to our balance sheet.

Deputy Michael McGrath

I thank Mr. Boucher. As he is aware, meeting the basic regulatory capital requirements is not sufficient, particularly in the context of accessing funding internationally. The markets will demand a much higher standard in respect of capital requirements. Realistically, if the write-off is going to be of the order of 30%, or a further €4 billion to €5 billion, what level of additional funding — whether from the State or from international investors — would the bank require to satisfy the requirements of the markets? If it receives €10 billion or €11 billion in respect of the €15.5 billion worth of loans on its books, to what extent will this be reflected in a real improvement in lending by the bank into the economy?

Mr. Richie Boucher

What we are looking at for the debt markets is a mix of equity capital and our core tier 1 capital. Based on the modelling we have carried out, our core tier 1 capital will be significantly ahead of the regulatory requirements and will in fact be such that we believe it will satisfy the bond markets on which we are reliant. We are satisfied, taking into consideration the potential discounts we would be obliged to accept in respect of the transfer of such loans, that the bank will be significantly in excess of the requirements relating to its being able to continue to fund its balance sheet on the markets. I do not believe this will be an issue. However, we are conscious of the fact that regulators may, over a period, increase the level of capital that banks will require. We will look to various sources and means if that eventuality comes to pass.

Under our EU restructuring plan, to which Mr. Molloy referred earlier, we are obliged to provide a five-year plan to the market. In that plan, we must show the assumptions we have made in respect of capital, liquidity and the profitability of the group going forward. That plan envisages us not requiring any further State aid.

With regard to the use to which we will put the money, we have capacity to lend into the economy and we will continue to have that capacity. NAMA will further support that which we are doing.

Mr. Des Crowley

On the EU plan, at this point we do not have a constraint on capacity in my part of the business in Ireland in the context of lending to either businesses or mortgage holders. As NAMA comes into operation it will improve liquidity systemically in the Irish market. There is intense pressure at present on deposit raising and deposit pricing and this is a distortion of the market. We are being obliged to convince the Directorate General for Competition — or DG Competition — in Brussels that competition will not be distorted. Our teams recently visited Brussels and they will return there in the coming weeks.

We welcome competitors in the market. Bank of Ireland needs to see that others are also active in the market. I refer not only to the primary Irish banks but also to other banks. We are of the view that NAMA will improve liquidity in the market systemically and ensure that there is a good competitive market. The onus is on those of us in Bank of Ireland's management team to demonstrate to the EU that we will entertain property lending propositions if they are viable, that we will support businesses and that we will compete on normal terms. The market has become highly competitive since the emergence of the Competition Authority's report in 2005, which contained 25 remedies. The key point is that it must remain competitive post-NAMA and normalisation and that credit must be made available by banks across the entire market and not just by Bank of Ireland.

Deputy Joan Burton

There are two matters that I wish to address. The first relates to the availability of credit to businesses. I attended one of the meetings Bank of Ireland held for business people. The Stoneybatter-Smithfield branch manager was kind enough to invite me and it was interesting to talk to people afterwards. Some ran small and medium-sized businesses while others were thinking of starting up or operated in the services sector such as solicitors whose business was related to property and so on. I was struck that businesses have little certainty about the availability of funds and where people go to a bank branch and introduce themselves to the various loan officers and so on, they are being given the brush off at an early stage and told there is no point in even making a loan application. People are extremely fearful about their overdraft renewals, including some who have been in business for a long time. Mr. Boucher mentioned the issue of communication in his presentation. This is a key problem for many businesses.

He also referred to improving the bank's margins. If the bank is shrinking its balance sheet so much and it is also faced with the cost of repaying the State, the pressure on its margins must be intense. Will the bank increase facility charges for different products? Business people need to know that because they must factor such costs into their budget plans for next year. Will the bank's charges on mortgages increase? Does Mr. Boucher anticipate interest rates and margins increasing on these products to give the bank stability? Does he feel burned by the experience of Anglo Irish Bank? Bank of Ireland and Allied Irish Banks must have been aware a long time ago that Anglo Irish Bank had a bust business model. I recall previous committee meetings where we were told everything was fine. I accept Mr. Boucher may have made this comment in optimistic good faith.

He referred to Anglo Irish Bank and Irish Nationwide Building Society offering competitive interest rates on deposits and competition in the market. Is he implying the interest rates they offer to depositors are more attractive than Bank of Ireland can afford? I am trying to read between the lines of his contribution. Is that what he is implying? These banks are owned by the State. Does he feel their interest rates can be maintained at the current levels given the pressure on Bank of Ireland's margins?

I refer to the relationship with the European Union and the post-NAMA scenario. Bank of Ireland will transfer €15.5 billion of impaired debt to NAMA and the write-down on that will be approximately €4.6 billion, which means the bank will receive approximately €11 billion in NAMA bonds. Given the ECB is slowly but surely narrowing the window for banks in the EU to use the facilities it has provided and Bank of Ireland has a €7 billion facility, what does the bank intend to do with the bonds? Will they replace the €7 billion facility to allow the bank to roll it over? Will the bank sell them on the bond market? Has the bank an agreement with the Government on how it will behave regarding the use of the bonds?

The Commission took a relatively hard line in its decision on ING in that all money advanced to banks by member states during the crisis must be repaid in full to prevent the distortion of competition while the European Court of Justice ruled in the Altmark case that recipients of state aid have a public service obligation to discharge and banks must do the calculation in an objective and transparent way. With regard to the amount of assistance Bank of Ireland has received thus far from the State, I find it difficult to add the figures. Taking into account the NAMA figure, the other figures outlined by the bank and the repayment requirement to the ECB, the bank may well need additional State funding, perhaps in the new year. It may not be as much as other banks may require but there seems to be a gap unless the bank can shrink everything much faster. That, in turn, will mean shrinking lending to domestic businesses. How does Mr. Boucher propose to address that challenge? How confident is he that the bank can address that challenge? Does he anticipate that, in the new year, the State will make another significant investment in the bank?

Mr. Richie Boucher

The Deputy asked a number of questions. She asked about other participants in the market. Clearly my colleague, Mr. Des Crowley, alluded to fierce competition in the deposit market. That competition is coming from a wide range of sources. We compete aggressively in that market. We think that over time the liquidity that will come in from NAMA will alleviate some of those margin pressures that are arising in the deposit market and that is a factor. We cannot dictate what other people charge or pay for deposits. We have to focus on what Bank of Ireland has to do. We look at our own balance sheet in Bank of Ireland. We get about €35 billion of our deposits from our retail and business banking in Ireland and we get the bulk of the rest from corporate customers. We also have a significant deposit base in our UK businesses. The positioning of our balance sheet and the sources of our deposits perhaps protect us to some extent from that but, nevertheless, we think that liquidity from NAMA will assist the market.

With regard to the Minister for Finance's estimate of up to €16 billion in Bank of Ireland assets going to NAMA, not all of these loans are impaired. We have advised the market based on the Minister's estimate that a significant proportion of the loans that we will transfer are not impaired. We have shown in our EU restructuring plan and we have modelled internally the impact different levels of discount on those loans may have on our capital.

Deputy Joan Burton

Is the bank still expecting €10.9 billion from NAMA as a consequence of the transfers?

Mr. Richie Boucher

As we said in our statement to the stock market on 4 November, uncertainty remains as to what we will pay for these assets.

Deputy Joan Burton

Does Mr. Boucher think it will be higher or lower than that?

Mr. Richie Boucher

As we said to the stock market on 4 November, that remains uncertain. On the issue of the EU restructuring plan, we have submitted a plan and commenced discussion on it. There are six elements to the plan, one of which is the calculation of the State aid. As the Deputy will be aware, seven or eight different banks have already had EU decisions, including ING, Lloyds Bank, RBS, Commerzbank and others. A range of decisions have come from the European Union on these. Therefore, we suggest there is not necessarily a read across from an EU decision with a particular institution in one economy ——

Deputy Joan Burton

Have all of those decisions not required the repayment to the state of the calculated amount of state aid so as not to distort competition?

Mr. Richie Boucher

Part of the process is a discussion on the element of state aid. In some cases the state aid is considered to be the entire amount, but in others it is considered to be the difference between what was provided and what one could have obtained that type of funding for with support from in the market. That is where an important part of the emphasis is being placed in the discussions. We and our chairman have said that over the five-year life of our plan, we will repay the preference shares. We will repay those preference shares through the retention of operating profits from the bank. In the first six months of this financial year, despite the shrinkage of our balance sheets outside of Ireland and the pressure we faced, we still generated an operating profit approaching €800 million. Therefore, we have a profitable bank. We have bad debts and will have to work through these through our process, but our plan shows we can repay the State aid.

Deputy Joan Burton

What does Bank of Ireland see itself doing with the NAMA bonds?

Chairman

Many other members also wish to contribute.

Mr. Richie Boucher

The NAMA bonds are a contribution to our funding. The proportion of the NAMA assets to the overall Bank of Ireland assets — whether €10 billion, €11 billion, €12 billion, €13 billion or €7 billion — is a contribution to our wholesale funding. We mentioned earlier that as a board we took a decision that our colleague, Des Crowley, would have absolute access to funding. We provided funding into this market when we had much more straitened liquidity circumstances than today.

The Deputy mentioned the European Central Bank. Bank of Ireland took a deliberate decision, which has paid off but has been expensive for us, to have the minimal possible reliance on the ECB. It has cost us money to term out our funding and not rely on the ECB. At 30 September, we had net borrowings, not just from the ECB but from monetary authorities, of approximately €7 billion. For a balance sheet the size of ours, that approaches normal market operations, because there could be borrowings overnight and so on. That is a disclosed figure, but it should not be taken as reliance on monetary authorities. It approaches normal market operations for a bank of our size. It is not appropriate for a bank like ours, which we believe has a long-term future, to be reliant on monetary authorities for permanent funding. That is a broken business model. We have held to this discipline, although it has been a difficult discipline to adhere to over the past six to nine months.

The Deputy asked several questions about our attitude and support for businesses. I would like my colleague, Des Crowley, to take those questions.

Mr. Pat Molloy

May I comment before we move on to Mr. Crowley? I know the Deputy's concern is whether the convergence of these forces will lead to a shrinkage in our capacity to lend into this market. We assure the committee that despite everything that has gone on, there has been no limitation placed on Mr. Crowley — he will reaffirm that — and the availability of funds to him. We do not envisage any limitation over the next five-year period either.

Mr. Des Crowley

To get back to Deputy Burton's comment on businesses, it is very important that all of us give some confidence to the business community that they will have facilities to manage their businesses through a difficult time and, hopefully, grow it in the future. I do not intend to return to the Mazars report on lending, which was conducted earlier this year. A further report is being conducted on the availability of credit, appeals and declines and so on. We are communicating actively in the market. We have launched mentoring and support programmes and are urging businesses to use the professional advisers in the market and to come and talk to us about their business plans or business restructuring, which tends to be the approach in the majority of cases now.

I am pleased the manager in Stoneybatter invited the Deputy to the session there. We are running a series of sessions in the week of 7 December and we would like the Deputies from the local constituencies to attend those and help us build the confidence in communities, because it should be a joint effort. We are very much in the business of renewing facilities for customers and the majority of customers who approach for renewals on overdrafts are approved. If we have issues with the viability of businesses, we are up front with those businesses and their advisers and try and come up with a restructuring plan with them. We are trying to utilise the funds we have launched, whether the EIB fund or the green fund or other mechanisms to try to get businesses back on to a stable footing. Our commitment is to support businesses to the fullest extent possible in the coming months and years in the economy.

Mr. Richie Boucher

One of the points Mr. Crowley made concerned overdrafts and ordinary revolving 364-day working capital facilities, at which we see utilisation of approximately 53%. What we advise and suggest to our customers and their advisers is that they should consider terming out their debt or using some of the other structures we have available for customers, in particular, invoice discounting and receivable financing. Receivable financing enables one to borrow money against the debtors and is a facility that automatically grows or shrinks, depending on one's working capital requirement, particularly that working capital requirement which is related to debtors. We have eased the terms of some of our invoice discounting arrangements to ensure that we recognise that in certain instances ——

Deputy Joan Burton

People generally regard that as being very expensive.

Mr. Richie Boucher

There is the perception and the reality. One of our jobs is to educate people, our customers and people who are not doing business, about what each type of facility and product we have provides to them. We try to inform them of what is best for their business and to be transparent about the pricing and then let customers make up their own minds as to what they want.

Generally, we as a bank find that the longer the term for the facility, the more one must pay. For the majority of businesses that would be aware of the range of pricing, our invoice discounting facility is an efficient and price competitive product. However, we recognise that it continues to be associated in business people's minds with a more historic product, factoring. One of the other concerns a business person might have is that people would know the business was using invoice discounting. However, invoice discounting is non-disclosed and is, therefore, an extremely efficient way of borrowing against debtors. It is one of the products we consider, because its account is cyclical, for a downturn.

Chairman

I invite Deputy Barrett to put his questions next. I remind committee members they should restrict their questions to the discussion on the interest premium.

Deputy Seán Barrett

That is a bit difficult. A comprehensive presentation was made here.

Chairman

I agree, but we intend to finish our discussion by 11.30 a.m. It would be difficult to do that if we had a wider discussion.

Deputy Seán Barrett

The issues are all linked. I would like confirmation on what was said with regard to NAMA. What the bank people are saying is that they do not foresee any shortfall in the amount of moneys being made available for productive purposes in Ireland as a result of the bank transferring good and bad loans into NAMA. Am I correct in that? What effect, if any, will transferring good loans into NAMA have on security arrangements for people who are using these good properties, for example, as security for loans in other parts of their businesses? It is important to consider this issue because it arises quite often. People find that this security may no longer be available and this could affect their borrowing capacity. This issue must be resolved and I would prefer if that happened this morning. I refer to NAMA and the animal which we discovered during the course of the debate, the master SPV. Has Bank of Ireland been asked to participate as an investor in one of these SPVs or to supply directors to any of them?

Reference was made to mortgages. Has Bank of Ireland changed its approach on the amount available to any individual borrower? Is the bank going back to the old style system of a multiple of salary or a percentage of loan or a need for a percentage as a deposit? I ask for an update on the current policy.

I refer to the public relations, PR, necessary to try to rebuild some confidence in the public mind to counter the damage done by activities in the banking system, not necessarily by Bank of Ireland. As my colleague, Deputy Bruton said, tremendous damage has been done. I suggest there is a need for a new approach on how the bank deals with the public. I genuinely believe that the day the banks got rid of the local bank manager with real power was a detrimental step in the banking system. The return to a local manager who has contact with the local community, both with local business and with individuals, is an essential part of a banking system. Local knowledge as to how people perform and the type of respect they enjoy in the community, seems to have disappeared. The bank is a faceless organisation. A person's loan application goes somewhere into this system and nobody seems to know who makes the decision. This is a very important aspect of the assessment of an individual's risk worthiness and how he or she runs a business. A business cannot be judged unless its day-to-day activities are known by a person who is locally based. I urge the bank to reconsider this aspect of the bank's business. It could be argued it is none of a politician's business to say this, but it is part and parcel of rebuilding a trust that is very much absent at the moment.

There is also a need for a great amount of openness and transparency from the bank. People are questioning why they are getting such a miserable rate of interest on deposits and being charged on borrowings. There is a need for the banking system to openly state the difference and explain the reason for it. People need to believe they are getting a fair crack of the whip and that it is not all going in one direction, into the profits of the banks at the expense of the individual who has very little choice as to where he or she puts their money. Things like this can only be for the good when it comes to rebuilding confidence. People need to believe they are part of the system.

The reason this committee is involved in this process is because, regardless of whether we like it, a democracy cannot operate without a viable banking system. Whoever provides that service, whether it is one bank against another, is immaterial to me but democracy cannot survive without a good banking system and the public need to have confidence in that system. Small things are often the important things and they annoy people. They are also the things that form people's opinions of the sort of deal they are being offered. It would do no harm for the bank to be more transparent and open. I recall that other people and Mr. Boucher sat in those chairs 12 to 18 months ago. Committee members asked straight questions but we did not get straight and honest answers.

Chairman

Mr. Boucher told us——

Deputy Seán Barrett

I am not saying Mr. Boucher was part of that; he did his best to deal with the issues. However, others failed to do so. When we got to that stage where that sort of behaviour was being tolerated in a democracy and where the banks, by means of the ordinary taxpayer, had to be bailed out, it is time we got straight and honest answers at all times. I urge the banks to have a level of transparency in all activities between both sides here. It is essential to rebuild the trust at local level through local managers.

Mr. Richie Boucher

I will take the questions specifically related to NAMA and talk about our overall approach. I will ask my colleague, Mr. Des Crowley, to talk a little about activities at local level which is very much at the heart of the Deputy's question.

It is very important for the bank to communicate better about how banks make money. This is vital. We have not been as effective. We spend a lot of our time communicating with debt markets and investors and in my view we should spend more time explaining to the general public how we make money and why we need to make money.

The Deputy asked specific questions about NAMA. Bank of Ireland believes that the liquidity to be provided by NAMA will undoubtedly have a positive impact on the ability of banks to support the economy. We believe that, should Bank of Ireland be able to go into NAMA, it will have a positive impact on Bank of Ireland's ability and will enhance our own ability to support the economy.

The Deputy asked whether the good assets going into NAMA would be tied up. There are criteria in our understanding of how NAMA will operate and what are termed "eligible assets", of which there is a wide range. There is a specific issue which we believe NAMA is aware of, that a customer might have a very small land and development transaction but it is tied to a number of other assets, be they hotels or something similar. We believe this is something NAMA is considering. We say to customers who may be transferred into NAMA that this is not a black mark or the end of the road for them. For NAMA to make money it is going to have to support customers.

A number of customers will go into the NAMA process and, for them, life should not be a whole lot different. They are repaying their loans and meeting their obligations. For those customers going into NAMA whose facilities require restructuring, NAMA should be able to support them in that regard. NAMA is able to look at exposures across the system and it should be able to assist in particular in looking at large exposures across the system where a number of different banks are involved. I am not sure about some customers, in particular, those customers who have not defaulted on their loans, because NAMA is more likely to spend time with customers who are challenged.

Deputy Seán Barrett

I have another question on that particular point as it is very important. Suppose I have a good loan with Bank of Ireland and I am meeting all the repayments and the percentage of the loan relative to the value of the property or whatever is relatively small. Suppose I have no other business with the bank, no other borrowings, and I was not asked whether this loan may be transferred into NAMA. However, the bank transfers it automatically and I subsequently find out that I cannot use that as security. It is the bank I will come back against, not NAMA, because the bank transferred that loan into NAMA. How will this affect future trading on my part?

Chairman

I believe that under the NAMA Bill it can be used as security.

Deputy Seán Barrett

That is not clear.

Chairman

I think it is.

Mr. Richie Boucher

We understand that NAMA is looking at this particular issue.

Deputy Seán Barrett

The bank is transferring the loan without my authority, even though it is a good loan.

Mr. Richie Boucher

For a bank entering NAMA, the eligible assets would be defined by NAMA and we would be obliged to transfer those loans.

Deputy Seán Barrett

What happens——

Chairman

We are not going to have a discussion on NAMA at this time.

Mr. Richie Boucher

I should emphasise that we are discussing these types of situations with NAMA and we believe that it will be looked at realistically. Our understanding is that NAMA is designed to support the economy so I do not believe it wants unintended consequences for viable businesses arising out of that. The Deputy asked a specific question about our participation in an SPV. We have not had any requests regarding the two questions he raised.

As part of the restructuring of our bank and our philosophy, the bank is looking at the communication process we have with our customers. We have had to take very difficult decisions over any kind of discretionary expenditure. I have had to make decisions about advertising and marketing budgets, etc. We have given significant investment, retained investment for our colleague Mr. Des Crowley. We believe in some of the things the Deputy has touched upon. We believe the best way to communicate with our customers is at local and community level. That is why we are trying things like "show your business" days in our branches. We have had farmers' markets on our premises. We are trying to convince people at local level that they should talk to their local branch. Ultimately, we believe that is how trust will be built up in the longer term. Trust is not built up by Bank of Ireland putting an advertisement in the newspaper saying, "Trust us". Trust is built up by interacting with people at local community level and ensuring that they are treated fairly and properly, get quick decisions that are honest, and get good advice. Hopefully that will be transmitted by word of mouth through their local communities. Bank of Ireland has a significant advantage. With approximately 250 branches we are represented in every community in Ireland. We are putting considerable effort into that. We get accused of some of these things being gimmicks. We think it is not a gimmick for the people involved in it. Perhaps Mr. Crowley would like to add to that.

Mr. Des Crowley

Even up to last night we had a number of calls to local branch managers in the affected flood areas, particularly along the Shannon basin, Galway, Clare and west County Cork. Our local managers are trying to support customers this morning because we know that this comes on top of the economic challenges they face in farming or local businesses. We know we need to reach out and support them. We are out there in the market at this point. That is the way we will build trust and we are very conscious of that. Pat Molloy has had this discussion at board level. We have said to ourselves that the next 12 months to 18 months will be seminal in terms of rebuilding this confidence and trust. Much of the discussion is focused on how we do that. The encouragement must be in the local community. As I said, last night and right through today we have been mobilising to ascertain what we need to do to support people through what will be a few very difficult weeks and months.

Deputy Barrett asked some questions about mortgages. It is very clear to us at Bank of Ireland that it is in our interest to see a return of confidence to the first-time buyer market in particular. We launched a €1 billion fund earlier this year. That is largely utilised at this stage and we are about to launch another fund. The pricing of our mortgages is very competitive. We have done some EU comparisons for 2008 and 2009 and Ireland is a very price competitive market for mortgages. Our website this morning shows our pricing for one-year fixed mortgages and variable mortgages, which are very competitive. We are giving loans with a loan to value of up to 92%, which we believe is reasonable and is probably consistent with prior periods when we had responsible banking. The income multiples have not changed and we have no minimum amount restrictions. A number of years ago we stipulated we would not do less than a minimum amount, but we have eliminated that.

Our objective is to be responsible in the way we lend. We believe people need to know the commitments into which they are entering. We stress-test the borrowers to ensure that if ECB rates rise back to normal levels of 3%, the repayment capacity is there and they have the disposable income. Those discussions happen every day. We are giving 350 approvals per week and we would like to be giving more. We want that fund to be filled because it helps our residential development customers. We are very conscious that it helps the entire economy. Our approach is no change and hopefully a more proactive supportive approach for customers.

Mr. Richie Boucher

On the mortgage front, we disclosed to the market on 4 November that our average loan to value on new business mortgages in Ireland is 66%. Mr. Crowley mentioned a figure of up to a particular amount. However, we have many customers who are putting material amounts of cash into mortgages. The average LTV for owner-occupied mortgages is 66% and for investor buy to let mortgages it is 46%.

Deputy Kieran O’Donnell

I thank Mr. Boucher and his colleagues for attending the meeting. Mr. Molloy made reference to the overall position of Bank of Ireland. We all want a sound financial banking system. However, the problem is that there must be fairness. I wish to return to the purpose of the delegation being here today, which is the Bank of Ireland lending rates over the EURIBOR or the prime rate, whichever one it uses. While Bank of Ireland claims that 53% of overdrafts have been extended, what about the 47% that have not? People tell us every day that their overdraft facilities and chequebooks are being withdrawn. Their overdraft facilities are being converted into term loans. How can they function without an overdraft facility when clearly that is working capital?

Representatives of Bank of Ireland have appeared before the committee before to discuss the overall broad banking sector. There was a race to the bottom by the banks. They went crazy between themselves in terms of lending.

Chairman

We do not need the entire history of it.

Deputy Kieran O’Donnell

I am getting to the point.

Chairman

We will not go back to the history of what happened. The Deputy should move forward and continue to ask proper questions.

Deputy Kieran O’Donnell

Chairman, I do not need advice from you as to how to ask questions.

Chairman

I am chairing the meeting.

Deputy Kieran O’Donnell

I shall get to the question.

Chairman

We are not discussing the entire history of what happened in the banking sector.

Deputy Kieran O’Donnell

No, we are not. However, the banks started lending at rates that were not viable and now the taxpayer is investing €54 billion through NAMA. Bank of Ireland is probably getting €11 billion. It has received €3.5 billion in recapitalisation and effectively seems to feel it is business as usual. Everything has changed and I would like to know how Bank of Ireland has changed its practices. While he did not mention it by name, Mr. Crowley referred to the Mazars report in terms of credit. The last Mazars report gave no breakdown between new and existing lending. It is all very well talking about new business, which is very important for the future. However, the biggest problem, especially at a time when we have floods, is that operations are going out of business. Some €11 million is being provided for them. Bank of Ireland has received €3.5 billion so far and it will probably get another €11 billion. What part will it play in bringing Ireland out of recession by extending credit? Mr. Boucher referred to NAMA but he did not answer the question the ordinary people want answered. How much of the €11 billion will go back out in business and mortgage lending?

Mr. Boucher also failed to answer another question. The markets are now looking for a core tier 1 ratio of approximately 8% or 9%. The regular ratio of 4% no longer applies. If there is a 30% haircut and if Bank of Ireland needs to reach the 7% to 9% core tier 1 ratio, how much extra capital will it need? That is the bottom line. The banks could be coming back to the taxpayer again very shortly for a further injection of capital. At the same time, businesses outside are going to the wall because they might have an overdraft facility of €5,000 to €8,000 and they cannot stay in business because their chequebooks have been withdrawn. People are getting letters from Bank of Ireland to that effect. When they ring the bank, they are told they cannot get a chequebook for two to three months.

Chairman

The Deputy asked that question already.

Deputy Kieran O’Donnell

No, I did not.

Here is my final question. Does Bank of Ireland lend based on EURIBOR plus a certain percentage or does it lend based on prime rate? In the past the banks might have been charging 1.5% above EURIBOR — or it might have been prime rate. Why do they now feel it necessary to charge 2%, 3% and in the case of some institutions 4% above those rates? Businesses got funding from banks on the basis that it would not go to that level and are under extreme pressure. My concern is that the 40% of people who have their overdraft facilities reduced will go out of business.

Will Mr. Crowley provide a breakdown of the new and existing lending figures? Will Bank of Ireland provide these figures for Mazars when it produces its report? If the report we receive states lending is at the same level as it was some months ago, it could be due to the inclusion of rolled up interest or a multitude of other factors in the figures. It is possible, therefore, that a failure to provide for new lending and a contraction in lending could be disguised by rolled up interest. Will this breakdown be provided?

How has Bank of Ireland changed its business practices? Ordinary people see the same board and management and ask what has changed. I am not being personal but stating a fact. People are finding their credit facilities are being withdrawn. They are giving money to the banks which are not reciprocating.

We want a sound banking system. Will Bank of Ireland be willing to take the second charge on a property held by the National Asset Management Agency? When a performing loan is transferred to NAMA, the asset could be taken as security and the agency may want to have the site in question developed. NAMA only has €5 billion available to it. Will Bank of Ireland be willing to take funding from NAMA?

Chairman

Deputy Barrett asked that question.

Deputy Kieran O’Donnell

It was not answered.

Mr. Richie Boucher

I apologise if I confused the Deputy. The figure of 53% refers to utilisation of the overdraft.

Deputy Kieran O’Donnell

In that case, the position may be even worse than I described. I want figures because small companies are going out of business.

Mr. Richie Boucher

The most important aspect for the customer is the overdraft limit. It is a factual matter that the limits for overdrafts in Bank of Ireland for small and medium-sized businesses have increased by 18%. What we are trying to demonstrate is that the requirement to borrow under these limits, across our entire customer base, is 53%. If, therefore, I have an overdraft of €100,000 and I only borrow up to €50,000, that is my utilisation figure. If there is confusion about this, I apologise.

Deputy Kieran O’Donnell

We hear from people on the ground that credit facilities are being withdrawn and curtailed by banks. They are being rolled into term loan facilities which do not provide for overdrafts, the key component of working capital. This matter is not addressed in the presentation.

Mr. Richie Boucher

In certain instances we will talk to customers about a restructuring of their facilities, as we do with mortgage customers. Where certain customers have an overdraft limit which is unsustainable, we may ask them to convert a proportion of it to a term loan.

Deputy Kieran O’Donnell

In some cases, the entire overdraft is being converted.

Mr. Richie Boucher

I would be disappointed if we were not leaving any working capital with a customer.

Deputy Kieran O’Donnell

I hope the bank will examine this matter again.

Mr. Richie Boucher

Working capital is important. What may have happened is that customers had short-term limits. To return to a point made by Deputy Burton, people keep on coming up to the renewal of the short-term limit——

Deputy Joan Burton

People are used to the one year system.

Mr. Richie Boucher

What we suggest to customers is that they probably need to extend their repayments over a period. In certain instances, we suggest they look at their borrowing and put some of it on a term basis so that a repayment pattern is established. It is important for us to ensure the customer has a limit which caters for week to week and month to month——

Deputy Kieran O’Donnell

Does Mr. Boucher agree that in many cases where a facility is renegotiated, the rate of interest is being increased significantly for hard pressed businesses, thereby jeopardising their viability? The bank wishes to address its capital position in the medium term but must give small businesses some leverage.

Chairman

I ask Deputy O'Donnell to allow Mr. Boucher to answer questions. He can ask further questions once a reply has been given.

Deputy Noel Grealish

On the same issue, many small businesses borrowed money on an interest only basis some years ago on the advice of their bank. It was suggested at the time that once their situation improved, they could repay interest and capital. With the downturn, banks are requiring these companies to pay interest and principal on their loans. Many small businesses are unable to afford to do this but are being told by the banks that, in accordance with a directive from head office, interest only loans may not be extended beyond five years. Many businesses with 17 year commercial loans have asked that they be extended to 20 or 25 years. I am aware of cases where banks have refused such requests, insisting that commercial loans are for a period of 17 years only.

Deputy O'Donnell raised the key issue of the cost of funds. I know of one business with a fixed interest, three year loan which is not due to mature for another two years. If the loan was not at a fixed interest rate, the business owner's repayments would be half what they are now. A request to exit the fixed rate loan was refused by the bank which also decided to increase the cost of funds. As a result, not only was the business owner unable to exit the fixed interest rate loan but his payments have increased. He was informed that the penalty for exiting the fixed interest rate loan would be between €100,000 and €150,000. Such cases are common.

When business people raise these practices with their local bank manager, they are told the directives are being issued from Dublin. These practices, which are not confined to Bank of Ireland, are crucifying small businesses. I know of another bank which asked a businessman to move his business elsewhere. Companies with interest only loans are being told they must repay interest and the principal. They will be forced to close down as a result.

Deputy Kieran O’Donnell

That is the key point. Companies are under pressure and find they cannot repay principal and interest. The banks, however, tell them that their rates will increase from perhaps 1.5% above the EURIBOR or prime rates to 3% above whichever rate they use. Viable companies will go out of business as a result.

Given that the banks are being given time through recapitalisation by taxpayers and the establishment of the National Asset Management Agency, small businesses must also be given time. Spokespersons for the banks continually refer to the medium term. We are all in this together and companies need the banks to take a medium-term approach to them. My background is in chartered accountancy and I know businesses are under enormous pressure. While we need a viable banking system, banks, the Government, politicians and small businesses must work together in the medium term. I ask Mr. Boucher to address this point.

Deputy Noel Grealish

The businesses to which I referred are paying their loans and not in arrears. They are trying to do deals with the banks to get through the next two or three years. The banks must work with companies which have ten or 15 employees to get through the current problems.

Deputy Kieran O’Donnell

Will the delegation give us a commitment to re-examine this issue? Long established and new businesses are at breaking point, which has implications for jobs and the future profitability of the banks. I ask Mr. Boucher to address this issue and give a commitment that Bank of Ireland will examine the issue.

Mr. Richie Boucher

Absolutely.

Chairman

My experience in this area is similar to that of my colleagues.

Mr. Richie Boucher

Our chairman who leads the board is the ultimate decider of strategy. We have said our future is inextricably linked with that of Ireland. Small to medium-sized businesses are an integral part of the economy. One of the steps we have taken to try to learn from this is to work more closely with entities such as Enterprise Ireland to develop our understanding. We should have a reasonable understanding, given our branch network, but we have to improve.

Deputy Kieran O’Donnell

Enterprise Ireland does fantastic work but it deals with companies with a staff of more than ten workers. I am referring to family businesses and companies with two or three employees, many of which are at breaking point. These companies are dealing with local branches and they are losing trust in the banking system. Members seek a commitment from Bank of Ireland that it will reconsider its approach to renegotiating overdraft facilities and take a medium-term rather than a short-term position. Instead of writing a letter to say one has exceeded one's overdraft limit, they should pick up the telephone, call the person concerned and invite him or her in to explain that a problem has arisen. That is probably done in individual cases but people are receiving letters to the effect that their overdraft facility has been stopped and their cheque book withdrawn. In effect, they are not able to function. We have to work together on the issue and consider what will happen in the medium term.

Senator Feargal Quinn

The delegates can take it that everyone in the country wants to have a solid banking system. We want it for the exact reason about which we have been talking, namely, that regular, medium and large businesses need a good banking system.

I was interested in what Mr. Boucher said, that while we are not borrowing from the ECB, the banks rely on ECB rates which are at a very low level. However, they are likely to increase. Given that people distrust the banks, how do they propose to put people's minds at rest in order that they can be sure they will get a fair deal when rates go up? The banks have a much tougher task than heretofore because there is loss of confidence. Businesses need assurance as to what their future costs will be. As soon as bank interest rates and charges go up, people will be suspicious. The banks have a huge task ahead and I am not sure they are doing anything like enough in response. Some of what has been said is worthwhile, especially what Mr. Boucher said about recognising this aspect.

This morning at 10 a.m. a decision will be made in the British courts on bank charges in Britain. The banks have said that if the decision goes a certain way, they will make up the shortfall on the charges. They have been accused of overcharging in various ways in different areas. They say that if they lose the case, they will have to find other ways of charging. I refer to what we used to call subtle charges, or stealth charges. How will the banks put people's minds at rest on the question that they will be tempted to introduce stealth charges, be they ATM charges or otherwise? The banks will have to work very hard on this because of the level of suspicion.

Is the banking sector confident that the Department of Finance has suitably qualified personnel with a depth of knowledge of the banking sector? We are relying on them to keep an eye on the banks. To my mind, they probably do not have experience of banking. I would hate to find that there was a charade, whereby the banks were only paying lip service to the efforts of the Department of Finance or whoever was controlling them, be it the Central Bank or the Financial Regulator. A challenge lies ahead for the banks which must put our minds at rest. In general, business and regular customers will be suspicious of them. In that regard, the banks have a lot of work to do. People are suspicious of the banks also because they might introduce charges on foot of what is happening in Britain. We need someone to look out for us and keep an eye on the banks on behalf of the Department. However, I question whether we have the ability, skills and experience to do this.

Mr. Des Crowley

In reply to Senator Quinn, Ireland is different from and better than Britain, thankfully, on the issue of stealth charges. In the Competition Authority review in 2005 there was no finding of any competition breaches by the banks in this market. It is clear that it is a price-regulated market, which is different also, but leaving this aside, there is much more transparency in this market. I say this from experience because I also run our UK operations. We can take consolation from this.

To return to the issues raised by Deputies O'Donnell and Grealish, we are actively working with customers to try to restructure their businesses with them and their advisers, many of whom are accountants and local advisers in the marketplace. We will entertain interest only repayments and consider restructuring facilities. We have published overdraft rates which do not change for these customers. We have transparent mechanisms in which to have conversations.

Deputy Kieran O’Donnell

What about extending the terms of loans?

Mr. Des Crowley

Mr. Boucher has mentioned to me a number of times the need to encourage local communities. If there are cases which give rise to concern, I urge members to bring them to our attention. We consider three or four cases a week but should probably do more than this. It is up to committee members to help us in that regard. Whatever data are required by the Department of Finance, Mazars or the Financial Regulator, we at the Bank of Ireland will provide them.

Deputy Kieran O’Donnell

When representatives of Mazars came before the committee, we were told the banks had stated they were unable to provide a breakdown of new and existing lending figures. I do not think that is credible in this day and age.

Mr. Des Crowley

I do not know if they were referring to Bank of Ireland in that regard.

Deputy Kieran O’Donnell

Is Mr. Crowley saying Bank of Ireland can provide for that level of breakdown?

Mr. Des Crowley

Yes, we can. The Deputy inquired about how we had changed practices. We have said publicly that we do not approve every credit request we receive. We approve four out of five requests or 80%, which is borne out by the Mazars study and our own internal data. For the other 20%, we have a second pair of eyes, which represents a change of practice, someone not associated with the first decision who considers these cases. We try to get as many of them over the line as we can, for example, by proposing a slight change in the way a loan is structured. We actively have a team doing this work. We are pushing out the boundaries in terms of how much we can support business. The committee has my assurance in that regard.

Deputy Joan Burton

May I ask a brief question?

Chairman

The Deputy should wait until the replies are finished. She can then ask a question.

Mr. Ritchie Boucher

I am sorry, Chairman, but I cannot remember whether there were other questions.

Deputy Joan Burton

The point I was going to make was that from all the information the delegates had given this morning and from what we knew from hearing from people locally, it seemed Bank of Ireland was developing a new model of lending. Many traditional customers are not familiar with this model, partly because until the downturn they did not necessarily have difficulties and where they did, they went to the local manager and worked something out. The parameters of the relationship have changed because local managers do not seem to have the discretion they once had, for reasons we can all understand. Many of those at the top level have only been lending to property developers in recent years. To me, they do not seem to have much experience of lending to small businesses which are not connected with property and construction. Many middle managers seem to view the word "construction" as poison. Intense negative feeling is apparent to those involved in construction who did not get too big and those involved in related businesses. It would be interesting if one could set out what were the new structures. What Mr. Boucher had to say about discounting invoices was interesting. I presume the banks are looking for collateral in the short term and that that is the basis of switching to invoicing. If one is switching to discounting invoices and debtors in a big way, that is a big change for many smaller businesses, in which they need to be schooled. The banks need to communicate the change of business model much more at ground level to get the message across.

Mr. Richie Boucher

I absolutely agree that we need to communicate much more. We need to spend much more time explaining changes to our customers.

Deputy Burton inquired about changes to our structures. One of the decisions we made was to ensure we would still be involved in the property lending business, but we have changed the structure. Property lending decisions can only be dealt with by specialised teams. It was a factor in our branch network and elsewhere that property loans had become more attractive than dealing with ordinary customers. Property lending is now led by specialist teams and our other customer teams cannot achieve their lending targets, objectives and goals by dealing other than with businesses engaged in commerce, trade and services. That is an important discipline and structure for the future.

Mr. Crowley mentioned some of the efforts we are making in sponsoring mentors and having our websites completely redesigned in order that customers would understand better how our products worked. Despite significant reductions in our discretionary costs, the money we are spending is going on communication at local level with customers, retraining and skills training. Deputy O'Donnell referred to Enterprise Ireland.

Deputy Kieran O’Donnell

It is doing great work but there are many who operate at a level below the companies dealt with by Enterprise Ireland.

Mr. Richie Boucher

The reason I mention it is we are spending more time on staff secondments to educate staff in order that they will develop their understanding of such businesses. We are planning and implementing a wide range of initiatives. It will take time and we will keep learning as we do so.

Deputy Kieran O’Donnell

Does Bank of Ireland accept we must look after SMEs?

Mr. Richie Boucher

They are the future of our banking——

Deputy Kieran O’Donnell

Absolutely. Are the people dealing with the transfer of loans under NAMA the ones who were giving out property loans?

Mr. Richie Boucher

Different people are involved in dealing with challenged loan portfolios and new portfolios. There has been a considerable redeployment of staff in the bank.

Deputy Kieran O’Donnell

Are different staff involved?

Mr. Richie Boucher

We have staff with certain skills and have been redeploying people. There has been a massive redeployment of staff within the bank in the past 12 months. We have set up customer support teams to deal with challenged loans and there are new business teams. This has been a very important part of our regional structure and relates to one of the points Deputy Barrett made. It is psychologically very important to have staff in the branch network whose sole goal is to attract new business. They have no other tasks or targets.

Deputy Kieran O’Donnell

And are looking after existing customers.

Mr. Richie Boucher

Absolutely.

Chairman

There is a vote in the Seanad.

Senator Shane Ross

The Chairman will not get rid of me that easily.

Chairman

I am just advising the Senator.

Senator Shane Ross

I will stay here.

Chairman

The Senator should ask a short question because he might not receive an answer otherwise.

Senator Shane Ross

I thank the delegates for attending.

I still cannot get over the extraordinary disconnect evident in everything that has been said by everyone present. On the one hand, the banks are claiming they are lending to small businesses and, on the other, small businesses are stating it is not happening. Who is correct? The anecdotal evidence other Members of the Oireachtas and I obtain is that small businesses are looking to the banks, not just Bank of Ireland, for loans but that they are being stopped here, there and everywhere and that rates are changing. All sorts of things are happening that are putting them into very difficult circumstances, yet Bank of Ireland tells us it is lending more money, as did Allied Irish Banks not very long ago. What is going on? Nobody seems to be able to solve the problem.

Mr. Boucher spoke about redeployment. I have been at a lot of these meetings. One of the things that makes me lose confidence in the banks is that the same faces appear at the same meetings all the time.

Chairman

That is not what today's meeting is about.

Senator Shane Ross

It is about redeployment, which is very important.

Chairman

That is not what today's meeting is about.

Senator Shane Ross

These are the people who make the decisions.

Chairman

I am not making any judgment on the veracity of the Senator's point but I must inform him it is not relevant to today's meeting.

Senator Shane Ross

It was called to address specific matters. I am asking whether there will be any changes at the top of Bank of Ireland and Allied Irish Banks. Redeployment is all very well on one level but the delegates are answering our questions on the issues addressed. Do the delegates from Bank of Ireland have any plans to go and have members see new people at these meetings who can answer these questions? What is needed more than anything is a change of personnel at the top of Bank of Ireland such that the questions on retail can be answered. For too long Bank of Ireland and Allied Irish Banks have been property banks. The people who were dealing with property loans are answering questions about retail business.

Chairman

Will the Senator, please, stick to the subject matter of the meeting?

Senator Shane Ross

My question is simple. With regard to the specific issues being addressed, will the delegates, please, indicate when new people will be making decisions and changing the culture in order that we can ask specific questions and obtain different answers from those we are receiving? We are getting the same answers from the same people at the same time.

Mr. Pat Molloy

Before answering the question directly, I am very much here in a listening capacity. I assure members this is not just about answering but also about listening. We will take stock of the points made and review them. I assure members we will take on board the very important messages they are delivering to us.

I might be an old face in many ways — I am — but I am a new face from the point of view of involvement in this matter. The Chairman will know of my track record in Enterprise Ireland, of which I was chairman for many years. I am acutely aware of the concerns of small businesses and very interested in looking after that constituency. One can be assured I will focus particularly on them.

I honestly believe we have the right team in place. It is not easy to satisfy the concerns of the committee on this fundamental issue, which Senator Ross correctly described as the disconnect between what he was hearing in his constituency and what we were saying. We have a huge task to convey convincingly what we are doing. I will personally undertake to review with Mr. Crowley how we are communicating and how we can build trust in and understanding of what we are doing. We must ensure we do not allow elements of our customer base to get lost because they are under the radar. I refer to the small family firms, of which the Senator speaks. We will reflect on and review the points made to us today. We will take on board the genuine concerns of members about elements of our customer base and ensure we build more transparency and trust.

Deputy George Lee

I appreciate the delegation's attendance. Most of the issues have been raised but there are a couple in respect of which short questions spring to my mind. The first relates to one of the core issues, namely, interest rate charges which are related to interest margins. Bank of Ireland speaks about its net interest margin having fallen. Our interest margins are low internationally. I am struck by the fact that one of the core points is that we are paying so much for deposits. The Government has or can have a great say in or influence on the running of most of the Irish banks. I am struck by how aggressive Anglo Irish Bank can be about pursuing deposits and by how high its rates and charges are. Are we paying too much for deposits? What could be done about this, given that we have a small economy and a small number of banks holding the bulk of Irish deposits? Given that we have a negative inflation rate, -6.5%, the real interest rates on Irish deposits are extraordinarily high for an economy that is trying to get off the ground. Do the delegates believe something could be done to address the interest margin that might be helpful in passing on lower interest rates to businesses?

Bank of Ireland has stated 350 new mortgages are being sanctioned each week. How many are extension or second mortgages? Is it possible to have a breakdown? It has been stated 600 people a month are renegotiating their mortgages. Three hundred and fifty mortgages a week amounts to over 18,000 a year, and this figure pertains to just one bank. I am not sure it reflects what we believe is occurring in the property market.

Bank of Ireland referred to its loan-deposit ratios, which rose to 92% in some cases and averaged out at 66%. For investors, the figure was 46%. With regard to the loan-value ratio, Bank of Ireland has obviously taken a view of value. According to its view, by how much have property prices decreased in Ireland since their peak?

I do not expect my final question to be easy to answer but it goes to the heart of the bank rescue which is still controversial. I know the banks have to wait and see how it pans out as to how much capital is available and what they will do with it. The banking system has net external liabilities, some of which will have to be balanced out when some of these loans are transferred to NAMA. Given that NAMA will begin to work before Christmas, how quickly will we see a return to significant lending by the banks?

Mr. Richie Boucher

Deputy Burton asked an analogous question about deposit rates. Market deposit rates are very high. One of the important factors that will arise from NAMA is the injection of liquidity into the system. Banks will not, therefore, be chasing wholesale costs, wholesale money and retail deposits. It is a competitive market.

Deputy George Lee

Will deposit rates come down when NAMA comes into operation?

Mr. Richie Boucher

I think so over time, particularly with the laws of supply and demand. There is a shortage of money in the economy. The liquidity that will come from NAMA should help in that regard. From a Bank of Ireland perspective, we have the advantage of having deposit gathering ability and pools which are external to the SME and business sector. The bank has substantial deposit gathering ability outside Ireland. It has clear goals as to where it can get to in a loan-to-deposit ratio, what it will pay for deposits and how it will alleviate the loan-to-deposit ratio. An important factor is the decision we have taken to de-leverage our balance sheet in that regard.

The arrival of NAMA may ease the capital and liquidity pressures on some of the other banks in the system. It will help us but the relative proportion of these assets from a Bank of Ireland perspective is not the same as for other banks. It is important from a systemic point of view. That cash and the confidence it might give banks on balance sheets should be of assistance in that regard.

Deputy George Lee

Does Mr. Boucher think having NAMA, when it comes to lending, will be like flicking a light switch?

Mr. Richie Boucher

Confidence is not something like flicking a switch. My chairman, my boss, referred to the fact that Bank of Ireland was constantly examining how it worked and using the assets it had to encourage confidence in the economy at local level where we set lending targets and goals. The bank's employees have to achieve these targets and they can only do so by talking to customers and doing things that might be different. For example, we have retail space in our branches and can allow people to showcase their businesses to our customers. If one walks into branches with entrepreneurs showing their companies and products, it helps with confidence. Confidence in the banking system and the general economy will take a while to rebuild.

Deputy George Lee

Many think they have viable businesses but the banks feel they are not. What is the bank's view on viability?

Mr. Richie Boucher

Sometimes we find people who believe their businesses are not viable but we can help them when they talk to us.

Deputy George Lee

It is a two-way street.

Mr. Richie Boucher

It is. We must encourage communication and be honest. However, there are times when we are wrong. We will lend money to people in the next few years who will not be able to repay us. Credit will be refused in instances where someone might not be able to repay us. We are dealing with thousands of credit applications every day. Some of these decisions will be wrong and we cannot guarantee we will get it right. If we are approving four out of five credit applications, one in five is getting news they do not want to receive. How do we help the people concerned? That is the challenge we must face. We might say we cannot do it this way. We are encouraging the restructuring teams which have been retrained to see how they can help a business to restructure outside of the old traditional way. We are looking at ways in which we might be able to introduce private capital and equity into businesses. This is an ongoing learning process for us. We have colleagues going to other countries to examine how they do things. We do not have a monopoly of wisdom on how to deal with these issues. We know we have to learn more and work hard.

Deputy Chris Andrews

I welcome the delegation. Coming back to Deputy Lee's comments about switching on lights, someone once told me that the only instant thing in politics was the coffee. I do not think NAMA is going to be any different.

Deputy Burton has said there is a new model in place, while Mr. Crowley has said the banks look at things in different ways. I had a positive meeting with two business people who told me they had gone to Bank of Ireland with a difficulty and the bank had worked it through. Initially, it did not look very positive but it was worked through. It is important to acknowledge that there is light at the end of the tunnel. If not, we are all doomed. I wish Bank of Ireland the very best because we need them all to succeed.

Deputy George Lee

What about the valuation of the property market and mortgages?

Mr. Des Crowley

The 600 cases referred to by Mr. Boucher involve people who run into some difficulties with arrears in a given month and for whom we restructure their borrowings. That is separate from the 350 new applications dealt with each week. Typically, this represents a small proportion, say 10%, of residential investment, or buy-to-let as it is known in the United Kingdom. It involves largely first-time buyers and trade-uppers. This concept of extensions is not reflected in the numbers.

We find it hard to call on the index value of properties because the level of activity is so low, particularly in the resale market. In some of the data we presented on 4 November we used certain modelling assumptions to state peak to trough falls could be of the order of 35% to 45%. We cannot say the market has bottomed out at this point but we hope it has.

Mr. Richie Boucher

Judging from recent transactions, values have fallen considerably from what an asking price might have been two years ago. The official index is a lagging indicator. For our loan to loss assumptions on our mortgage book in Ireland, we have assumed a peak to trough fall of 45% but it is very difficult to say it has hit the bottom. I noted, however, with the flow of new business, the average LTV was 66%. This is a factor we must examine. However, the primary factor is our assessment is the repayment capacity of the customer.

Deputy Terence Flanagan

I thank the delegation for appearing before the committee. Regarding the figure of €2.1 billion, is there a breakdown in lending to SMEs in the first nine months of the year between lending to new and existing businesses? Will the delegation elaborate on the secondment of staff from Enterprise Ireland to Bank of Ireland? Will they be involved in making decisions on lending to viable businesses?

Mr. Richie Boucher

The colleagues from Enterprise Ireland are not involved in customer decisions. They have looked at our lending processes and systems. They have helped us to look at how we think about certain segments of the market. There clearly must be customer confidentiality issues, which are very important when we have people on secondments. People in Enterprise Ireland spent time looking at our treasury operations and how we fund the bank. The communication process involves asking ourselves whether we are explaining ourselves properly to people on how we make money. They have looked at our marketing and communications work.

We think it is very important to have someone who has a different set of eyes and does not just think about the bankers.

Deputy Seán Barrett

There was a very successful scheme back in the 1980s on that issue——

Chairman

We have to move on.

Deputy Seán Barrett

——where the public and private sector management swapped.

Deputy Terence Flanagan

Is it possible to give the breakdown of the €2.1 billion?

Mr. Richie Boucher

We have undertaken to do that. The information we provide is done in a prescribed format for communication to the Financial Regulator and the Department of Finance in order to exceed our objective on commitments to the Government. We have no problem with transparency on that issue. We will do our best to communicate that more effectively.

Deputy Joan Burton

There are many people in my constituency in their early to mid thirties, married with two children, who are self-employed as carpenters and electricians and who are working on housing developments. These people have mortgages, and the Bank of Ireland and other banks often encouraged them, when trading up to a bigger house, to keep the first mortgage and to roll it into the second house. These people may be living somewhere in the Dublin region, but they may also be letting the original house. Many of them have mortgage debts of €600,000 or more on two houses. They have a car loan, unless they have already given the keys back, and they also have personal debts on two or three credit cards.

Many of these people are close to desperation. They often tell me that they would like to emigrate, but they do not know how to manage their debt downwards. I know that Bank of Ireland has had somewhat more conservative practices than many of the banks, but I meet these people every day and their parents who are helping them to pay the mortgages out of the SSIA money that they saved. Does Mr. Boucher have some kind of message for these people? They have really worked hard. They were considered to be "breakfast roll" men and they did everything that the former Taoiseach required. It has all come unstuck and they are on a sea of debt and do not know how to get out of it. Does the bank have relationship counsellors for these people?

Mr. Richie Boucher

Yes, we do.

Deputy Joan Burton

They need some kind of a lifeboat that they can give them hope.

Mr. Richie Boucher

Our message is "Please come and talk to us as soon as possible". No matter what anybody thinks of their personal situation, we have seen similar situations. We have put much of our effort into dealing with this and we have people trained to help customers with budget and advisory services. We also encourage people to talk to MABS.

Deputy Joan Burton

It is now taking seven or eight months to get a MABS appointment.

Chairman

We have finished this section and we have AIB officials waiting since 10.30 a.m.

Deputy Joan Burton

This is really important for many people. Can Mr. Boucher finish the answer?

Chairman

You interrupted him.

Deputy Joan Burton

I am sorry. I had just said that there is a seven or eight month appointment waiting list for MABS.

Mr. Des Crowley

In every one of our more than 250 branches, we have people available to call ordinary customers who need to understand their outgoings better. We have people with skills to do budgeting, to try to restructure their loan packages and to help them through this very difficult situation. Our message is to encourage them to come in, no matter how bad they are feeling. We will sit down and spend an hour with them to see if we can restructure their debt or help them.

Chairman

I thank Mr. Molloy, Mr. Boucher and Mr. Crowley for their presentation and their replies to the questions asked in the past two and a half hours. I was interested in the comments made for better communication to mend that disconnection between the general public and the banks, as well as the need for transparency. We will take cognisance of this over the next few months, and I am sure we will have further meetings. It will be interesting to see if those views change over that period.

This has been a time of reflection on what has gone wrong and how to put it right. We look forward to that happening. I thank the witnesses for coming along and I look forward to further discussions in the months ahead.

Mr. Pat Molloy

Thank you Chairman, and I thank committee members for this exchange of views. We appreciate the opportunity we have been given, and we will reflect carefully on what we have heard here. At the end of the day, we all have a shared agenda.

Sitting suspended at 12.15 p.m. and resumed at 12.25 p.m.