Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach díospóireacht -
Thursday, 17 Nov 2016

Banking Sector in Ireland: Bank of Ireland

Chairman

I welcome from Bank of Ireland Mr. Richie Boucher, chief executive officer, his colleagues Mr. Liam McLoughlin, chief executive of the retail Ireland division, and Mr. Pat Farrell, head of group communications and government relations.

In advance of the meeting we collated questions from members of the committee and submitted these to Bank of Ireland. I thank Mr. Boucher and his staff for responding in writing to these. Those responses and other questions will form the basis of our meeting.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. If you are directed by the committee to cease giving evidence in relation to a particular matter and you continue to so do, you are entitled thereafter only to a qualified privilege in respect of your evidence. You are directed that only evidence connected with the subject matter of these proceedings is to be given and you are asked to respect the parliamentary practice to the effect that, where possible, you should not criticise or make charges against any persons or entity by name or in such a way as to make him, her or it identifiable.

Before asking Mr. Boucher for his opening statement, I acknowledge the delegation from Taiwan, including the Minister's representative here in Ireland. They are very welcome to Ireland and I hope that Members of the Oireachtas will make their stay both enjoyable and productive. I thank them for visiting this morning's committee meeting.

I ask Mr. Boucher to make his opening remarks.

Mr. Richie Boucher

As the Chairman has introduced my colleagues, I will not take up time doing so. A copy of the presentation has been circulated in advance to members of the committee. In the time allocated to me, I do not propose to go through the pack in detail. Therefore, my opening remarks will reference a number of slides and I will hopefully deal with those.

Our presentation includes a range of details, including updates on key highlights from the bank's interim results for the first six months of 2016; our interim management statement from 28 October 2016 which updated the market on our financial performance; the regulatory environment in which our bank operates; our mortgage business and our approach to mortgage pricing; our position on mortgage arrears; and some details on the governance we have both internally and externally.

In addition we have returned to the committee the answers to the range of questions sent to the bank in advance. I thank the Chairman for his compliments to my colleagues who endeavoured to answer those questions. At the outset I must briefly reference the requirements that Bank of Ireland must observe as a public company. We are quoted on the Dublin and London stock exchanges. We make extensive disclosures to our shareholders annually through financial statements, presentations and other materials during our financial year, including our annual report, interim report, interim management statements and other markets as appropriate.

All statements made and information provided in this public forum are considered to be market information which is disclosed to all stakeholders at the same time. Therefore it has to be capable of verification and has been verified. Any comments that my colleagues or I make must adhere to the same standards.

Members will be aware that the State holds a 14% discretion shareholding in the bank, which has 86% private sector ownership. The State's shareholding is a matter for the Minister for Finance. Under our approved EU restructuring plan, with all state aid having been paid, the relationship between the Minister for Finance and Bank of Ireland is governed by a relationship framework agreement, which recognises that the bank is a separate economic entity, is managed on a commercial basis and engages with the Minister for Finance in accordance with best institutional shareholding practice.

Our financial performance is covered in slides 4 to 8. Slide 4 should give the committee some enhanced understanding of the scale of our business and our operations in the Republic of Ireland. We have a comprehensive multichannel distribution platform, including Ireland's largest branch network, augmented by 1, 770 self-service devices. We have more than 440,000 active mobile phone customers. We have market-leading positions across the financial sector in Ireland serving 1.7 million personal and 183,000 business customers.

Slide 6 sets out our business highlights for the first six months of this year. As I have already updated the market, I reaffirm that the group has continued to deliver on strategic priorities. One of our strategic priorities is obviously lending money and we have continued to be the largest lender into the Irish economy having advanced €3.5 billion of new money to Irish businesses and consumers in the first half of 2016, an increase of about 14% on a similar period last year.

The group continues to reduce the quantum of non-performing loans and the absolute number of customers who are in a non-performing category. We report an underlying profit of €560 million for the first six months of the year and all our trading divisions are contributing to group profitability.

Slide 7 outlines the geographic regions from which we derive our income. Approximately 70% of income from our group's operations comes from our businesses in the Republic of Ireland; some 25% is derived from our business in the United Kingdom, which includes, because it is in the sterling area, our universal banking business in Northern Ireland; and the remaining 5% of our total revenue is derived from our international operations, which are probably exclusively in continental Europe and the United States of America, through our leveraged finance business.

Slide 8 gives some detail on our engagement with the communities in which we operate and serve in Ireland. We have a number of activities which from our perspective are focused on encouraging enterprise, particularly in local communities, and supporting in particular small businesses and start-ups. Most of these events take place in our local branches where our business customers are invited to showcase their business and advertise their products and services to new and existing customers. During our last national enterprise week in May 2016, we hosted 750 events countrywide and approximately 3,000 businesses took part. We will have another such event starting next week.

We also have an activity, called "enterprise towns" where we work with the local communities, businesses communities and sports, social and charitable organisations hosting major community events which are open to the public. These activities are important to us as a commercial business to encourage community development in rural Ireland.

We have been looking at the configuration of our branch network, the reduction in the number of people utilising our branches and the fact that we have that space. We have been converting a sizeable amount of the floor space within the branch network and we provide it to start-up businesses on a free basis to start their businesses, engage with each other and get advice from our staff. We have opened five of those to date, two in Dublin and one each in Cork, Galway and Limerick. More than 500 start-up companies have used Bank of Ireland workbenches to start their business. That is important to us because it encourages enterprise and also, hopefully, those people will let us quote for their business.

Slide eight shows the continuing investment being made in the bank meeting our changing customer needs. In that context, I wish to mention the work we do with customers in the Republic to support them in the use of new technology, whether that be desktops, use of the Internet or smartphones. In particular, we are conscious of the fact that some of our customers are at different life stages or have different familiarity with the digital world. We have groups of advisers throughout our branch network who engage with the active retirement groups, transition year students, business customers, farmers and community groups by holding events in our branches, local halls, communities, libraries, nursing homes and so forth. That supports our customers not only in how to interact with us through online channels but also in being more comfortable using technology generally. We have had 3,000 such sessions with senior customers so far this year.

Slides ten to 16 set out some key points from our interim results in more detail. Obviously, because of the nature of this engagement and the fact the members are representatives of the taxpayer, we have set out the fact that we received €4.8 billion from the taxpayers. That money has been repaid in full. We have returned in excess of €6 billion in cash to the taxpayers for the investment and the contingent liability support that was provided. I confirm that as of October the taxpayers do not have any risk or liabilities to Bank of Ireland under the eligible liability guarantee scheme. The State holds a 14% shareholding in Bank of Ireland and at today's share price that is worth approximately €1 billion.

Slides 18 to 20 detail the latest financial performance update, which we provided to our shareholders in October. That confirms that we continue to trade in line with our expectations and continue to meet our financial objectives.

Slide 19 focuses on asset quality in the business. It confirms that we continue to make significant progress in reducing the quantum of non-performing loans across our group. They have reduced by €800 million to €9.1 billion at the end of September and the defaulted loans have reduced by €600 million to €8.1 billion. I confirm that the reductions are across the geographies in which we operate and across the asset classes - corporate, property, business, mortgages and unsecured consumer lending.

I am providing the committee with a market update as well. In the nine months to the end of September our total new lending in all of our business, including into the Irish market, was €10 billion. That compares with €9 billion on a constant currency basis for the same period in 2015, so our new lending is up approximately 11% on the same period last year. Our capital ratios continue to be supportive of our strategy. Our core equity tier 1 ratio on a fully loaded basis was 10.5%, and in the period from the end of June to September we generated approximately 30 basis points of organic capital. I should point out that since the end of September the movement in international bond yields will have significantly reduced our accounting deficit and our capital ratios will have improved quite materially in recent weeks because of that accounting movement in our defined benefit pension schemes.

Given the committee's focus on mortgage pricing and mortgage arrears, slides 26 to 30 give significant detail on that. Slide 28 reflects our pricing strategy. We keep all our pricing for all our products across the group under constant review and there is a range of factors for the bank, as a responsible lender, to consider. In terms of mortgage pricing in Ireland, we have a particular focus on fixed rate mortgages. I confirm that 75% of new mortgages provided by the Bank of Ireland in the Republic of Ireland in the past nine months have been at a fixed rate. Our mortgage lending in the nine months to the end of September has increased from our mortgage lending in the nine months to the end of 2015.

Slides 32 to 39 give comprehensive detail, which is also covered in the questions, on our mortgage arrears. Again, the mortgage arrears show that there has been a continued reduction in owner-occupier and buy-to-let mortgages in arrears. At the end of June 2016, 3.3% of Bank of Ireland's owner-occupier Republic of Ireland mortgage arrears were greater than 90 days in arrears. That compares with an industry average, excluding Bank of Ireland, of 9%. Bank of Ireland mortgages in the Republic of Ireland which were greater than 720 days in mortgage arrears also continued to reduce.

Slides 43 to 44 give some further detail, outside of the financial results, of the work we do within the community, particularly in Ireland. In May 2016, Bank of Ireland was awarded a businesses working responsibly mark from Business in the Community Ireland for our work in that regard.

We set out in slide 46 why we are highly focused on our strategic objectives. We remain Ireland's largest lender. We have market leading positions across our businesses. Our businesses are strong and financially robust. Our business model is working for our customers and our shareholders.

I thank the committee for its attention. I and my colleagues look forward to the members' questions, although perhaps not necessarily look forward to them but hopefully we will answer them professionally.

Deputy Michael McGrath

I welcome Mr. Boucher and his colleagues, Mr. Farrell and Mr. McLoughlin. I thank him for the extensive information provided in advance of the meeting and the answers provided to the questionnaire. I acknowledge the overall improvement in the bank's performance as it moves to a more stable environment following the severe economic crisis we experienced in recent years.

I will focus on mortgage pricing. As Mr. Boucher indicated, the bank puts a big emphasis on fixed rate products. That is evident from the fact that 75% of the bank's new lending in the mortgage area is on fixed rates. That is a clear strategy on the part of the banks. However, on the variable rates, the bank is still charging up to 4.5% for many customers at a time when the cost of funds for the bank is less than 0.75%. The bank is still charging some customers more than six times the cost of the funds the bank is accessing. How can that be justified?

Mr. Richie Boucher

We have a very clear strategy on this, and in particular we have reflected on some of the lessons of the past. One of the issues in the past was that there are two reasons people can have problems repaying their mortgages - either their income falls or the cost of repaying the mortgage goes up. As a bank, we do not take interest rate risk. We have traders who take intraday risk, so we cut out as a bank on an ongoing basis. Even though we trade in the markets all the time, we cut out interest rate risk. We are a commercial business and we must consider how we use our shareholders' money. We are deliberately incentivising customers to move to fixed rates. We believe that the current interest rate environment is abnormal. As I mentioned earlier, there has been a material shift in bond yields even in the past three weeks. If anyone is taking out a 20-year mortgage and they do not believe that interest rates are going to rise over that 20 years, I would ask them whether they should really be making this investment. If one does not think interest rates are going to rise over the next 20 years, that means the world economy will still require massive quantitative easing from the central banks. That is an unrealistic proposition.

This is a very deliberate strategy. We are trying to encourage our customers to move to fixed rates. They get certainty on what they repay and we get certainty from our point of view.

I would like to reiterate for anyone watching or listening - I will use the free advertising - that every one of our existing customers can avail of a fixed rate. Every one of our existing customers could save money today, if he or she is on a variable rate and goes on a fixed rate. Obviously, going to a fixed rate binds one into a period of time, but we say one can go into a three-year fixed rate and one does not have to fix one's entire mortgage. One can save money and one can get certainty on the repayments. That is our strategy.

Deputy Michael McGrath

It is fair enough that Mr. Boucher availed of the opportunity to highlight that. Is Bank of Ireland being proactive in communicating with its customers and outlining the savings that they can make? Typically, his customers can get a fixed rate of approximately 3.5% and yet many of them are paying 4.5% on a variable rate. They could switch and save 1% for a year, or perhaps sign up for two years. What is Bank of Ireland doing to inform customers of the available options?

Mr. Richie Boucher

Obviously, this is always a personal choice for a customer because it is a different decision to move from a variable to a fixed rate, but we use a variety of mechanisms to point out the opportunity. We have to be careful not to encourage. If it was my decision, I would do it. For example, in every annual statement we send out to our customers on an ongoing basis, we point out our product range. We are not allowed to actively encourage a customer to switch from one product to another but we have to inform the customers. However, I am using this opportunity, as a public statement, to say that I think it is a sensible thing to do. We would not promote a product unless we thought it was sensible.

Deputy Michael McGrath

What is the uptake like?

Mr. Richie Boucher

First, I should characterise. Our average variable rate mortgage is approximately €95,000. Therefore, some of our customers may not consider the potential savings - it is still money and every €1 is a saving - worth their while. I think it is worth their while. The process is easy. One contacts us and provides an updated valuation. The reason one provides an updated valuation is, for example, on a three-year fixed, it is either 3.5% or 3.1%, depending on where one is. We think it is a good idea. I understand the point Deputy Michael McGrath is making, but that is our strategy.

Deputy Michael McGrath

I would argue that, as a product, Bank of Ireland's variable rate pricing is too high. It is way overpriced. From what Mr. Boucher is saying, that is a clear strategy on the part of the bank. Bank of Ireland is happy to be an outlier on the variable rate pricing in an effort to encourage more customers onto fixed rates because it provides certainty to both the bank and customer. Is that Bank of Ireland's strategy?

Mr. Richie Boucher

That is a very carefully considered strategy. I am talking to the members, as public representatives, but I explained this to our shareholders because, ultimately, if we provide an incentive to customers, it is shareholders' money. It is a deliberate incentive.

Deputy Michael McGrath

I want to ask about the rate incentives that apply in Bank of Ireland UK. Bank of Ireland UK has a two-year fixed rate of as low as 1.43% and the two-year rate on a high LTV is 2.69%. How long are those rate incentives in place for an individual customer?

Mr. Richie Boucher

It would depend on the product but it typically would be two years. We do it slightly differently. Each market has a different characteristic. For new mortgages in Ireland, that is, for switchers, for first-time buyers etc., we provide cash incentives. It probably works out roughly the same in terms of the incentives to the customer.

Deputy Michael McGrath

Then why is there such a difference, for example, between a 3.5% fixed rate in Bank of Ireland in the Republic and a fixed rate in the UK and in Northern Ireland of 1.4%? That is a significant difference. I accept it is time limited. As Mr. Boucher stated, it is typically for three years, but how can that significant gap in the pricing be justified?

Mr. Richie Boucher

For a new mortgage in the Republic of Ireland, we provide 2% in cash and then there is 1% if a borrower stays with us for five years. It equates to the same thing. It is just that in different markets there are different practices but, as an incentive, it is probably broadly similar.

Deputy Michael McGrath

There is an incentive there. I would argue for the borrower it is much more sustainable to be on a good rate - the 2% back is a one-off payment - but people will weigh that up themselves. It is attractive for people to get a lump of cash back, if they are buying a new home and they are furnishing etc., but I would argue having competitive rates is in the long-term best interests of the customer.

Mr. Richie Boucher

For sure, I would concur.

Deputy Michael McGrath

People will weigh that up themselves.

Bank of Ireland refers in the questionnaire to mortgage to rent and I want to ask Mr. Boucher about that. Very few cases, 39 cases, are completed. The bank referred 301 eligible cases to the Housing Agency. Can Mr. Boucher tell us why mortgage to rent is so slow? Why is it not really working? Why are the numbers not coming through? In the case of long-term arrears, why is that scheme not working?

Mr. Richie Boucher

My understanding - I cannot absolutely verify this - is that we have had the highest take-up but the numbers are relatively low. As a commercial organisation, mortgage to rent is a product that we would promote. There are issues around stock. There are issues about the availability of the finance to local authorities etc. We have been working, in particular, with the responsible Department, both as a bank and as part of working groups. We have pointed out areas where perhaps processes could be streamlined etc. We have continued to engage with the Department. However, it is difficult for us, as a bank, to identify those but we would be happy to.

Deputy Michael McGrath

Okay.

Mr. Richie Boucher

My colleague, Mr. McLoughlin, who is probably more closely involved with this, might be able to help here.

Deputy Michael McGrath

Sure. It just does not seem to be working. It could help a lot of borrowers.

Mr. Liam McLoughlin

The scheme, as Mr. Boucher stated, is one that we support. It has been out for some time. On the previous occasion we were before the committee, we gave a number of recommendations, as did other institutions. To be fair, there has been movement in July 2015 and we have seen progress taking place. I am cognisant of the fact that there has been some progress, although we would agree with the Deputy. We would like to see more progress as well.

Of the 301 cases, we had the most cases going through. However, there are limits in relation to house valuations. Given the limit is €350,000 in Dublin, it does not include many houses within the threshold. The limit is €250,000 outside of Dublin. The income limits are also challenging. On negative equity, there has been a significant move from negative into positive equity with the house price movements and it has restricted the number of cases that are eligible for it as well. Further movement on those thresholds and limits would be helpful. It is a scheme that we believe in.

Deputy Michael McGrath

I have a ten-minute slot and my time is nearly up, and I have one final question. I would like to hear Mr. Boucher's observations on the economy. What is he, as a bank CEO, observing? What has been the impact of Brexit so far? What is he seeing across different sectors? What sectors are doing well? Where are the pressure points at present? Would he give his observations on the economic outlook currently?

Mr. Richie Boucher

In co-operation with the European Commission, we bring out what we call a monthly pulse survey. We use an independent third party. They interview, on a monthly basis, 1,000 consumers and businesses in a mix across regions and across industry sectors. What I can say is there continue to be high levels of confidence in the economy. Approximately 60% of businesses that we interview expect that their business and the economy will do better, 25% consider that it will be broadly static and 15% say it could get worse. Broadly, sentiment is good and that has been reflected in our lending numbers.

However, I should say that we have been surprised, and slightly positive, about the lack of a real impact to date, both in our British business and in our Irish businesses, from Brexit. We felt Brexit could happen and we spent a lot of time, in particular, with customers in the Border communities, for example, in the hospitality sectors and retailing, to understand how they could be impacted by different exchange rate movement. Also, many of our mortgage customers might commute back and forth to London, or commute and work in Northern Ireland, but have mortgages in euro, and clearly their income has been impacted by that. The impact has been surprisingly benign to date.

We believe that some sectors of the economy such as commercial real estate in the Dublin area could benefit but for small businesses whose sole market is the UK, clearly there is an exchange rate impact. People in the Border countries could see switching. Our retailer customers in Northern Ireland will benefit, and our customers in the South will not.

What I would say though, in talking to our business customers in particular, is that a lot of them have been through heavy cost reductions and their businesses are much more efficient. I would say their risk of default is increased but it is still relatively low. I think they will be like us - the money we earn in sterling is just worth a little bit less, and in some cases quite a lot less. We could see some people looking at moving from what are called technical hedges, that is, buying their sterling forward, etc., to looking at perhaps structural hedging, in other words buying more raw materials in sterling or indeed relocating parts of their business to the UK to service that economy. I think that there will be a negative impact on our economy from Brexit. I cannot believe that there will be an overall positive basis.

Deputy Michael McGrath

I thank Mr. Boucher.

Chairman

I remind Members to put their phones away. I have just received a message from the broadcasting unit to say they are interfering with the sound quality transmission of the meeting.

Deputy Pearse Doherty

I welcome the witnesses to the committee. I thank them for the 20-page document they supplied in response to our questions and the presentation, which helps us.

I wish to focus on the approval and drawdown of mortgages. We see a clear pattern from Bank of Ireland's information but also across the banking sector that the approvals for mortgages outstrip the number of drawdowns by a ratio of 2:1, and that has been happening for some time. Does Mr. Boucher agree with the Irish Banking Federation’s analysis from 2014 when it said that it remains concerned that housing supply constraints are becoming a serious impediment to sustaining growth and this is reflected in the widening gap it sees developing between the level of mortgage approvals and actual drawdowns? Is that a statement Mr. Boucher agrees with, and in his view is it having an impact in terms of the level of drawdowns of the mortgages Bank of Ireland has approved?

Mr. Richie Boucher

It is definitely a reflection of that. I would not say it is the sole reason. Sensibly, our customers are seeking mortgage approval before they go and look for a property. In certain locations, for example, in the main cities, but more particularly in Dublin, there could be up to ten bidders for a property and it moves beyond the price range for many. That would be a very significant factor. The economy is improving and so are people’s incomes but I have a view that the primary driver is the shortage of supply. It is just basic economics that supply is constrained and therefore people cannot get the house they want at the price they want. We think supply is improving. There is still another phenomenon in that we still believe that just under half – it used to be more than half – of properties are being purchased for cash. I do not mean that someone comes in with a bag but they are not being bought for mortgages. People are converting money they have on deposit and buying property with it. Our lending to the buy-to-let sector is relatively low but it is a market we still try to service. I concur with the observation that it is definitely a supply constraint issue.

Deputy Pearse Doherty

We have heard in other forums that the issue is one of demand, namely, that people cannot get mortgages and therefore developers are not seeing sufficient demand and that we need to increase demand and then developers will start to build. Based on Mr. Boucher's expertise and information he has from Bank of Ireland in terms of mortgage approvals in recent months, could he tell the committee how his information would align with that statement?

Mr. Richie Boucher

If I look at it from a slightly different angle, namely, the perspective of developers, as we finance them, building is not an easy way to make money. As a builder, one's return on capital if everything goes well is around 10% or 11%. That is what the margin is - quite a lot of cost comes out. There was certainly an issue when the Central Bank guidelines were introduced in 2015 when builders got a little nervous and wondered whether there would be demand. There may be some issues of affordability or the builders' willingness to meet the demand is somewhat impacted by their perceived profitability but, from our perspective, I would say that the primary constraint is supply side.

Mr. Liam McLoughlin

It was traditionally considered a Dublin phenomenon but we are seeing the same supply challenge in other cities and in rural areas as well. The situation is now countrywide.

Deputy Pearse Doherty

Mr. Boucher mentioned commercial property to Deputy Michael McGrath. Is he concerned about the price of commercial property? We have had a number of reports from Moody’s and the IMF talking about funding industries coming in and buying commercial property which is significantly pushing up the price of commercial property. Is Mr. Boucher concerned for the wider economy, let alone Bank of Ireland, about the significant increase in the cost of commercial property, in particular in central Dublin in recent years?

Mr. Richie Boucher

The risk factor for the economy as a whole is somewhat constrained by the fact that the primary purchasers have been overseas funds, which have been primarily buying it for equity, that is, their own investors or shareholders’ cash. Many of them have made quite a lot of money because they came into the market at a time when it was depressed and they were providing liquidity. The rise in the price of commercial real estate as an absolute threat to the economy is relatively low.

As a bank, we have had to learn some lessons, hard costing lessons, for everyone, so we do not finance buildings on a speculative basis for commercial real estate. One must have a tenant in situ and the tenant must be a strong tenant. We will not provide more than 65% to 70%. It is less of an issue than it might have been in the past. There has been quite a big pick up. What we are seeing is that for about three years one had a yield shift, in other words, there was a liquidity phenomenon coming in and bringing in rental yields but what we are now seeing is the prices are being driven by rental growth. Rents are increasing and therefore that is contributing to capital price rises.

Deputy Pearse Doherty

I am limited in time and there are several issues I wish to address. On the help-to-buy scheme, the bank was consulted on the scheme before it was announced. Could Mr. Boucher tell us about the consultation and the position the bank took on the proposed scheme?

Mr. Richie Boucher

I beg the Deputy’s pardon but I am not aware that we were consulted.

Deputy Pearse Doherty

The Minister for Finance told us on Committee Stage of the Finance Bill that all banks in which the State had a shareholding were consulted by his officials on the help-to-buy scheme.

Mr. Richie Boucher

I think we were consulted on a wide range of issues in terms of what we thought and we would have given some of our own suggestions. It could have been the case. My colleagues interacted on a wide range of issues but I am not aware of anything specific in that regard.

Deputy Pearse Doherty

Mr. Boucher is not aware of anything.

Mr. Richie Boucher

I can verify the position and I will come back to the committee.

Deputy Pearse Doherty

I would appreciate that. In terms of the thresholds for the macro prudential rules, Mr. Boucher said in his submission that the threshold for the LTV rules should be increased to €300,000. The average mortgage for first-time buyers in Bank of Ireland is €177,000. How does he square that circle? How many individuals from his point of view would benefit as a result of the change, given that the level of the average mortgage is below the €220,000 threshold?

Mr. Richie Boucher

There are two features in the information we volunteered to the committee, first, that the average mortgage and the average LTV is approximately 70%. The increased threshold is more of a Dublin issue because of house prices. We find that some customers in the Dublin area are constrained by the threshold. The 15% is a requirement that we have to observe and we would have sufficient demand. We have to keep below the 15% but we would have sufficient demand to be able to go above it.

Deputy Pearse Doherty

Bank of Ireland is providing 15% leeway on the rules. Some 30% is going to first-time buyers and 70% to non-first-time buyers. Obviously, there are those who are moving and so on but there is no distinction between buy-to-let buyers and first-time buyers in terms of how this must be applied. I would have imagined a bank would try to support those who want to get into the property market for the first time. Given that less than one third is being provided to those in that category, is there additional scope? How does the bank determine which individual does not have to comply with the hard and fast rule requiring a loan-to-value ratio of 90% for a loan up to €220,000, and a sliding scale thereafter, or 80% for the portion above that sum. How does the bank apply that?

Mr. Richie Boucher

First, we do not use a broker channel so 90% plus of the mortgagors are existing Bank of Ireland customers. Obviously, this is based on loyalty to our own customers. It would not surprise us that approximately one third is buy to let because the demand for the higher amounts is primarily among people who are buying larger houses, moving up or trading up. Perhaps my colleague Mr. McLoughlin is closer to that.

Mr. Liam McLoughlin

It is very much that. In response to customer demand, it is not a case of saying "No" to a loyal Bank of Ireland customer, a good customer, where we have not seen the sufficient supply to feed the first-time buyers, particularly in the Dublin area. We respond to demand. If the customer is a good Bank of Ireland customer and meets our risk and affordability criteria, we will give the loan to the customer. We do not prioritise within the 15% LTV band opportunity.

Deputy Pearse Doherty

There has been a significant increase across the sector in terms of mortgage approvals since March of this year. From information released by the Irish Banking Federation, we have seen a steady rise. Can the delegates explain why there has been a quite significant increase month on month from March of this year?

Mr. Liam McLoughlin

A good recovery in employment numbers and job opportunities are factors. People are looking for new houses. There is no shortage of demand, as far as we are concerned. There is a very significant rental market. Over 300,000 are in rental properties and, as the Deputy said, they are keen to get onto the ladder. The demand exists. The consensus numbers suggest a market of about €5.5 billion from a mortgage point of view. We have already said there is a significant cash element on top of that of about 40% or 50%. We predict an increase in consensus numbers resulting in a €10 billion mortgage market over the next four or five years. We would not disagree with those numbers. There is rising demand. Supply is a challenge.

Deputy Pearse Doherty

My final question is on customers in mortgage arrears. I find it incredible that we are so far from the crisis while still having banks that have thousands of loans on their accounts that are still in significant arrears. Arrangements have not been dealt with. We see from the bank's figures that, as of 30 June, there were 5,257 principal dwelling homes in arrears for 90 days or more, with 1,100 of those in some sort of forbearance arrangement. It seems that is just short of 20%. I presume these are presenting as what would be called the "hard cases". It has been reported that, in Bank of Ireland, we can expect to see significant movement in terms of the court actions in 2017. Can the delegates state how many of the homes the bank expects to take into possession? Can the delegates assure us and their customers that no mortgage book pertaining to buy-to-let properties or principal dwelling homes will be sold to vulture funds?

Mr. Richie Boucher

On the latter, I cannot give an absolute commitment ever. I cannot say we would never do so but our practice and policy have been to work out challenged loans ourselves. The customers are our customers and we believe the policies and procedures we have been following mean we can restructure over 90%, and 90% are sticking. We believe it is working for us. It is in our commercial interest and we believe it is in the best interest of our customers that we work these out ourselves. As a CEO of a commercial company, I cannot say we would never sell to vulture funds but I would say it is highly unlikely because we believe what we are doing is working for ourselves and customers.

On the other side, my colleague is closer to the matter and maybe he can help us.

Mr. Liam McLoughlin

A key principle is that we recognise the fundamental importance of the family home. We have worked to keep people in the home. Our track record since 2013 is that we have seen a 53% reduction in the number of people in arrears in owner-occupied properties. We are working actively with those cases. In the first six months of the year, as externally reported, we had 60 repossessed houses. We work in most circumstances to come to a consensual arrangement with customers. We want to work out a solution that is sustainable for the customers. If it is not sustainable we look to a solution such as a mortgage-to-rent arrangement, which is why we believe in it. In the majority of cases, however, we believe we can reach a sustainable solution. Nine out of ten of our customers are fully up to date and nine out of ten are paying back and honouring the terms where we have put solutions in place for sustainable loans. We are very keen to ensure we get the right outcome for the customer.

Mr. Richie Boucher

I would have to say we cannot be disingenuous. The number of repossessions is likely to increase. In our mortgage business in the UK, which is roughly the same size as our own, the level of arrears is lower and the number of repossessions is probably double the number in Ireland. There is a regrettable inevitability about that but obviously we see repossession very much as a last resort.

Deputy Pearse Doherty

It is reported that 2017 is the year in which, from the bank's point of view, action will be taken. It is reported this will be the final push.

Mr. Richie Boucher

It will be over a long, drawn-out period. I do not regard 2017 as a spike or anything like that. It will work its way through over a very long period.

Senator Paddy Burke

I welcome the witnesses to the committee. Where does the bank rank in terms of the industrial average number of repossessions? Is it at the top?

Mr. Richie Boucher

It is not a league table that we try to keep. We look at it from our own perspective. I am sorry but I do not know our rating. We can check the disclosures made by the other banks but I do not have a figure offhand. I will come back to the committee to confirm our position over the past six months relative to the size of our mortgages, the number in arrears and the absolute repossessions. I do not want to be disingenuous in saying we do also use receiverships for buy-to-let properties. I will include the relevant figures.

Senator Paddy Burke

The Bank of Ireland does not have a great name in respect of repossessions. It seems to be much tougher in getting its pound of flesh than the vulture funds or many of the other banks. That is the perception and it would seem to be the case from listening to various people. They state Bank of Ireland is probably the hardest crowd with which an individual can do a deal.

Mr. Richie Boucher

We have a responsibility to everyone, including our customers. If we make a restructuring arrangement for a customer, it has to be sustainable over its lifetime. We would re-underwrite the entire mortgage. We have to say what is sustainable and ask whether it is a one-and-done solution for the customer and us. We put a lot of work into that.

As the CEO of a public company, I reiterate for the record that for 90% of the challenged customers who present to us and provide us with a statement of financial means, we can restructure. Some 90% of those restructurings are sticking with us. With regard to where we have been accused of certain things, the statistics do not bear out the allegations. I refer to our interaction with personal insolvency practitioners and the Insolvency Service. The number of cases that we do not support is below the industrial average. We are very consistent in how we apply our policies and procedures.

Senator Paddy Burke

It was interesting to hear the delegates talk about the fixed interest rate. I agree that people should have certainty and know what they will pay in the future.

What is the fixed-interest rate that Bank of Ireland charges for people who restructure their mortgages and for new mortgages?

Senator Gerry Horkan took the Chair.

Mr. Richie Boucher

It depends on the product. I will ask my colleague to handle that question.

Mr. Liam McLoughlin

In respect of question number 13 on page four of the questionnaire, the three-year fixed rate is 3.1% where the loan to value is less than 80%. Where it is over 80%, the rate is 3.45%. We have fixed rate products that range from one year to ten years. We are the only institution that has a ten-year fixed rate product in the marketplace. Where the loan to value is less than 80%, the ten-year fixed rate is 3.95%. Where it is over 80%, the rate is 4.2%. As indicated earlier, we have a cash-back scheme. Under a 2% cash back deal, the customer will get cash to the value of 2% of a mortgage upfront and if the mortgage is still there at year five, he or she will get a further 1% of the original value of the mortgage.

Senator Paddy Burke

Slide 38 states that Bank of Ireland has quite a number of borrowers who are more than 720 days in arrears. I think the number is in the region of 1,358. The presentation goes on to state that the vast majority of people in this group would more than likely require social housing. Does the bank have some role to play in respect of this matter or should the State take it up and provide accommodation for these 1,358 people who probably entered into bad deals with the bank or for whom the bank arranged bad deals or whose circumstances changed? Does Mr. Boucher not think the bank should be able to play a role in this regard?

Mr. Richie Boucher

I can confirm that, as we say in the document, the figure of 1,358 relates to accounts. It is not necessarily the number of customers or properties. We report on accounts. We provide funding to housing associations. We have used our significant experience in the UK market, we provide finance to housing associations and we are happy to provide finance to local authorities, etc.. So we play a role in that.

Senator Paddy Burke

Does Mr. Boucher not think that the bank has some obligation to some of those people to offer some sort of write-down or to work out a solution rather than throwing them back on the taxpayer and onto local authority housing lists?

Mr. Liam McLoughlin

In slide 38, we point out that of the 1,358, more than half - some 726 - made no payments during the first half of 2016. They are making no payments at all. A further 267, or 20%, are paying less than 50%. In the report, we state that their contracted payment on a mortgage is €920 per month on average. If they were in the average residential property, they would be paying €1,060 per annum. Of these customers, 726 made no payment at in 2016 so that is the challenge.

Senator Paddy Burke

Is that because, for whatever reason, the relationship has broken down between the customer and the bank?

Mr. Richie Boucher

We say that if customers come and talk to us, we will find a solution. We will not find a solution for everyone. People make these decisions. Everyone makes their own individual decisions. If a customer refuses to engage with the bank, the options available to the customer and us are narrowed. To address the Senator's point about local authority or social housing, my understanding is that if someone is in local authority or social housing, they must pay something. These customers are paying us nothing so there are issues involved.

Senator Paddy Burke

There must be a breakdown in communication because Mr. Boucher is quite right about them having to pay something to local authorities. As he says, they are paying nothing to the bank.

Mr. Liam McLoughlin

We would encourage these customers to come and talk to us and we will see what we can do in terms of dealing with these situations.

Mr. Richie Boucher

The 720-day period for us has continued to reduce and our repossessions have not gone up. That underpins the fact that we can engage with customers in long-term arrears and get a restructuring that works for them and us.

Senator Paddy Burke

I note that in February 2015, Bank of Ireland, with Goldman Sachs, acquired a portfolio of loans sold by Danske Bank. That was reported in the Irish Independent in February 2015. In April 2016, Bank of Ireland bought some restructured IBRC mortgages from Lone Star. That was reported in The Irish Times on 28 May 2016. In September 2016, it was reported that Bank of Ireland was to acquire a loan portfolio from Start Mortgages. I did not think Bank of Ireland would be in the business of buying distressed assets.

Mr. Richie Boucher

We bought the performing portfolios and worked with private equity companies. We want the customers who are performing. In some cases, they would have been customers who would have had financial challenges but had restructuring. We buy the performing portfolio while the private equity company buys the non-performing portfolio. These are now valuable and valued customers of the bank.

Senator Paddy Burke

Is it not the case that if Bank of Ireland is buying distressed assets from one bank and the other bank is buying distressed assets from Bank of Ireland, it is like a merry-go-round involving all the banking fraternity buying each other's distressed assets?

Mr. Richie Boucher

No, we would not subscribe to that practice.

Senator Paddy Burke

One could look at it that way though.

Mr. Richie Boucher

It was a matter of public record that Danske Bank was exiting the country.

Senator Paddy Burke

Some of them were leaving the country. Others did not leave.

Mr. Richie Boucher

IBRC was in liquidation and Start Mortgages was exiting the market, so these are entities that are exiting the market and selling on their portfolios. I would also say that it is likely that some of the private equity companies will, over time, be looking to sell on some of the assets they bought. That is something we think could work for us. We are getting customers, we are on a commercial basis and the customers are then with a bank that has been in this country for 200 years and has every intention of remain for far longer than that - longer than I will ever be around. We provide a long-term sustainable home for these customers.

Senator Paddy Burke

How will the bank deal with those customers compared to how the vulture funds would have dealt with them? Would they be more likely to get a deal with a vulture fund than they would with Bank of Ireland? The perception is that they would be more likely to get a deal with a vulture fund than they would with Bank of Ireland because of the bank's heavy-handed tactics.

Mr. Richie Boucher

I would not agree with the term used by the Senator. As I have said, 90% of our customers, be they business or mortgages, can get a restructuring that works for us and them so I do not agree with the term used by the Senator. What I would say is that the customers are now our customers regardless of whether they were acquired or walked into one of our branches or business centres. They are our customers so they are valued customers with whom we want to do business. If we buy these loans just to par, we achieve nothing. We want to get customers. Every day of every week, we want to get more customers and do more business with them. That is a commercial imperative and if people are exiting the market, those customers need someone to provide their financial services and we think we have a good proposition.

Senator Rose Conway-Walsh

I thank Mr. Boucher, Mr. Farrell and Mr. McLoughlin for coming before us. Has any change in Government or regulatory policy regarding mortgage arrears been communicated to Bank of Ireland or noted by it? At any point, has the Central Bank or any political body asserted to Bank of Ireland that it will have to offer either split mortgages or mortgage-to-rent proposals to families in arrears before it moves to take legal steps?

Mr. Richie Boucher

If we talk about a time period, over the past five years there have been quite significant changes to policy and guidance, particularly from the Central Bank. We have very strict regulation of the engagement process we have with customers with financial challenges and we support and adhere fully to it. In particular, it encourages customers to come and talk to the bank. We support other mechanisms so we provide financial services and other support to other bodies which provide aid or advice to customers with financial challenges so we are supportive of that. If I talk about a more recent time period, namely the past six months, I am not aware of any material change.

We engage with the Central Bank on an ongoing basis, and it gives us advice, requests and instructions, but I would say at the edges rather than anything material. We have not had any specific instruction on the number of customers to whom we must provide certain products. What we must demonstrate in particular to the Central Bank is to confirm a solution is sustainable, on an equitable basis for the bank and customer and appropriate for the customer.

Senator Rose Conway-Walsh

The programme for Government contains several commitments, one being to work with the Central Bank to amend the code of conduct on mortgage arrears to include an obligation on providers of mortgage credit to provide a range of sustainable arrears solutions. This code of conduct will be put on a statutory basis. Does Mr. Boucher have a view on whether it will impact the bank's way of dealing with arrears cases or does he believe it is about forcing vulture funds to act more responsibly?

Mr. Richie Boucher

Whether the code of conduct is statutory or regulatory it does not matter for us. If we do not meet our regulatory obligations we lose our banking licence, which would not be very good news for the shareholders who employ me. I do not think for us it would make a material difference. I must be honest, it is not a question I had considered in too much detail.

Senator Rose Conway-Walsh

Another commitment made was to establish a dedicated new court to handle mortgage arrears and other personal insolvency cases sensitively and expeditiously, including those where solutions recommended by the new service are imposed. The hearings of this court could be held in private if requested by the debtor. What is Mr. Boucher's view on a court being empowered to impose solutions in such a way? The legislation has been well flagged and there may be a temptation to deal with as many cases as possible before then.

Mr. Richie Boucher

As I stated, we still request that customers engage with us. I pointed out earlier that the number of cases greater than 720 days in mortgage arrears is reducing without repossessions, which means we can strike deals with customers that work for the customer and for us. If there is new legislation the bank will obey it. I reiterate that in the vast majority of cases it is in our interests and the customers' interests that we do a deal. Repossession is not something that works for the bank. It does not help our reputation and costs us money. It is not something I like to see but it is a fact of life. When collateral is provided for a loan, at some stage the collateral could be lost. If we did not have collateral we could not provide a 25-year commitment at somewhere between 4.5% and 3.1%. We would go bust tomorrow.

Senator Rose Conway-Walsh

I have attended some of the courts, in Mayo in particular. One case comes to mind, where the cost of the mortgage was €66,000 and a member of the family of the person who owed the mortgage offered €50,000 to the bank. Rather than take the €50,000 up front, the bank in question, which I will not name, made the decision to repossess the house. This indicates to me what Mr. Boucher is telling us in terms of doing everything to avoid repossession is not sometimes how it pans out on the ground.

Mr. Richie Boucher

We have a responsibility to everyone, including the 95% of our customers who fully meet the terms of their mortgages. We cannot do a lighter arrangement if someone offers us something. We have to be consistent. I get criticised for this, but we must be consistent. Our job is to maximise the recoveries. That is our job.

Senator Rose Conway-Walsh

I completely understand, but I am sure Mr. Boucher can appreciate many of the selfsame people lost their jobs because of austerity, the reckless lending of banks and the €4 billion given to the banks in the first place. There is an obligation not only to look at the mix within the bank but to look at the obligation.

Is Mr. Boucher prepared to rule out the sale of the residential or commercial loan books to vulture funds?

Mr. Richie Boucher

It is not our policy and what we are doing is working, but in my job I can never say never. If the bank's circumstances were to change I could not rule it out, but I would say it is highly unlikely. What we are doing with our customers is working. The solutions we are putting forward are working. It is highly unlikely. We were forced by the European Commission to sell a component of our mortgage book. One of the requirements we had was that the bidders for the book had to be licensed and regulated by the Central Bank, because ultimately these are our customers. We have a relationship with them and we might have a relationship with the brother, sister, son or daughter of the people involved. Ultimately we must think about them. I cannot tell the Senator never, but I think it is unlikely.

Senator Rose Conway-Walsh

But Mr. Boucher cannot rule it out. The standard variable rate remains very high for existing customers, and 31% of customers are on a standard variable rate, with 50% on tracker rates. Are tracker rates loss-making?

Mr. Richie Boucher

Not for us. The yield on our trackers is approximately 120 basis points. The cost of money to us is approximately 73 basis points. We are probably not fully covering our cost of capital. If we speak about yield or margin, we offer fixed rates to our customers but 450 basis points is our gross margin. Our cost-income ratio is, shall we say, 50%, so our net margin is 2.25% on which we have to put capital and losses. Our margins are relatively thin as we start.

Senator Rose Conway-Walsh

So the bank's tracker mortgages are not loss-making.

Mr. Richie Boucher

They probably do not fully cover the cost of capital, but they are not on a cash loss-making basis.

Senator Rose Conway-Walsh

Understandably there will be a sense that as long as half the mortgage book is based on tracker mortgages the other half, particularly those on standard variable rates who cannot switch, will be made to pay extra to make up the difference. Is this a fair estimation?

Mr. Richie Boucher

I am not aware of a reason someone cannot switch from a variable rate to a fixed rate. Sometimes we get asked about people in negative equity. The loan is the loan. It actually makes sense for us from a risk mitigation point of view. I am not aware of circumstances under which a customer on a variable rate could not move to a fixed rate with us.

Senator Rose Conway-Walsh

I am conscious of my time and I wish to ask a number of other questions. Mr. Boucher referred to quantitative easing and the effect it might have on interest rates. What does he think might happen when EU quantitative easing stops?

Mr. Richie Boucher

If I knew that we would be making a lot of money. It has to stop at some stage.

Senator Rose Conway-Walsh

When does Mr. Boucher think it will stop?

Mr. Richie Boucher

I think when inflation starts to pick up in the European economy. That is what the European Commissioner has said. The President of the ECB, Mario Draghi, has said it cannot all come from a push on quantitative easing. There is a surreal atmosphere at present with negative interest rates. I am not sure this encourages people to invest one way or the other. The ECB has said we are doing our bit and we need other things to happen. Economies are recovering. Quantitative easing is probably pushing down the exchange rate as well. What we see happening in the United States could happen more quickly than people anticipate. The Governor of the Bank of England, Mark Carney, has probably eased back on some of his commentary, but if I were able to read people's minds I would be doing a much better job for my shareholders than I can now.

Vice Chairman

The Senator's time is up.

Senator Rose Conway-Walsh

I absolutely need to ask Mr. Boucher this because I come from a rural area.

I am not just talking about Bank of Ireland in this regard. Elderly people are being forced to use machines as a result of a drive to make banks staffless. Elderly customers are being told to go away and come back on Friday, Thursday or Tuesday as they can only do the transaction on those days. These people are dependent on rural transport and may have to travel miles to get to the bank. They do not have broadband. How does the bank plan to deal with and care for those customers in the future? Many have made valid contributions to propping up and investing in the banks. Many are elderly people whose families have had to emigrate because of the austerity imposed on them as a result of the recklessness of the banks. Do the witnesses feel a social obligation to those people to provide them with a human being to help them when they go into a bank?

How many redundancies have there been at the Bank of Ireland in the past 12 months and how many do the witnesses foresee in the next 12 to 24 months?

Mr. Richie Boucher

I will answer parts of the Senator's questions and my colleague, who is responsible for our Irish business, will take the rest. We employ approximately 5,500 fewer people than in 2008. All of our redundancy schemes are on a voluntary basis and we have agreements with the trade unions which represent our unionised staff, agreements which apply to all of our staff. The absolute number of people we employ is pretty much the same six months on six months, but the locations where people work and the jobs they do are continuing to change as we and society evolve. Our customers, particularly our senior customers, are extremely valuable to us and they have been loyal customers for a long time. We need to do business with them and not just from a social perspective. I reiterate that we have kept our bank branches open. We think it is commercially sensible to keep them open, although they are doing different things now. I will ask my colleague to deal with the question of how we interact with senior customers.

Mr. Liam McLoughlin

The Bank of Ireland has a footprint of 250 branches in the Republic of Ireland and we have closed no rural branches in the past five years. Every branch has a commercial mandate to ensure it is viable but we work with local communities and Mr. Boucher mentioned a number of initiatives in this regard earlier. We are working to make them commercially viable. Transactions across the counter in branches now account for 4% of total transactions so there has been a significant reduction in cash and cheque activity as a result of customer behaviours. There is a significant move toward digital activity. Our experience has been that elderly customers are very familiar with, and comfortable using, lodgement and ATM machines.

On the question on the facilities and services we offer, we have moved all our smaller rural branches to external lodgement ATM machines so that customers have the alternative of using those machines to access their moneys, not just six hours a day during the week but 24 hours a day, seven days a week. We have extended our scope in this regard and elderly people are very comfortable with technology and using mobile phones-----

Senator Rose Conway-Walsh

They are not comfortable doing so if they do not have mobile phone coverage or if they do not have broadband. I completely disagree with Mr. McLoughlin's synopsis of how people are being treated. He says cash transactions are rarer than they were in the past. Of course they are, because people are being turned away.

Mr. Richie Boucher

I would be surprised if someone had been turned away from our branches. I would be disappointed.

Senator Rose Conway-Walsh

I am afraid that is the reality. Perhaps we could conduct a survey with rural and elderly customers to ask them, at first hand, what their preferences are.

Vice Chairman

I was going to bring up those points at a later stage. I will come back to retail issues later.

Mr. Richie Boucher

I will encourage our colleague who looks after the Senator's constituency to talk to her on what we offer in her area. We will also look for the Senator's feedback on the meeting.

Senator Rose Conway-Walsh

I am not talking about a specific area, rather the west of Ireland generally.

Mr. Richie Boucher

I understand that.

Mr. Liam McLoughlin

There are cashless branches in Dublin too. They are becoming a feature of the bank. There are no tellers or any human presence at all in some branches. One can deal with a machine or, by going to a different branch, with a person. I will take this up later on.

Mr. Richie Boucher

Our alternative is to shut the branches. We have two alternatives. We can try to make them work or shut them.

Vice Chairman

I can accept that is the case in some areas, but my own branch went cashless on 1 November. It is not in a rural area and is not a small branch. It has carried out a massive and very glamorous refurbishment but it no longer has teller facilities for foreign exchange, coin, cash or foreign cheques. Yes, people can go to another branch but for people who are used to going into that branch they cannot get cash as there are no staff dealing with cash, though there are staff in the branch for different purposes.

Mr. Liam McLoughlin

Some 96% of our transactions with customers, a number which is rising every year, are done digitally and that is what people want. The 4% is falling, year on year, and in the past 12 months alone customers have decided to reduce their cheques in circulation by 23%. Customers are deciding to use less paper and want to use mobile devices. More than half of transactions are done on mobile devices or tablets. We are striving to support local communities though the enterprise scheme and that is why we are investing so strongly in the enterprise programme across all 250 branches and in 100 towns this week. Cheque and paper transactions are going down and less and less cash is being used, while contactless cash-and-go facilities are what customers, both young and old, want.

Vice Chairman

We all acknowledge that and I know plenty of people in their 80s and older who use online banking or phones or tablets but there are certain things one cannot get online. One cannot get a sterling draft, for example, and one cannot even get one in some branches. I know of clubs and resident associations that have awful difficulty dealing with banks because, as unincorporated bodies, they do not have the facility to go online and cannot do business banking. I hope the bank's systems will address the needs of these people so that they can go online to do these things, which they cannot do at present.

Mr. Liam McLoughlin

We continue to invest in our online facilities. We recently made enhancements for clubs and societies in response to feedback so our 365 online capability now deals with clubs and societies. If there are specific instances which the Vice Chairman wants me to look at, I will take it up. We continually invest in our digital capabilities and there is a significant ongoing investment programme in response to customer needs and asks. The mobile application is being enhanced, as are 365 online and banking business online. We are bringing more and more customers online because that is what they want. Clubs, societies and neighbourhood watch schemes all want that and we are extending the service for them.

Mr. Richie Boucher

We work hard to get customers and have a desire that no customer is left behind as the world and our bank changes.

Senator Rose Conway-Walsh

Does the broadband report produced this week, which shows that it is okay to live in Drimnagh but not in rural Ireland, concern the bank? The broadband speed in rural Ireland is not adequate to pay a bill or access a bank account.

Mr. Richie Boucher

It impacts negatively on business as well.

Vice Chairman

I have to let Deputy Paul Murphy in as he has been very patient.

Deputy Paul Murphy

I also have to leave soon. Anybody who has attempted to use the Bank of Ireland's business online facility will doubt the commitment to modern technology.

It is like something from the 1990s, an online Excel spreadsheet and the Lotus Notes software we use here.

I thank Mr. Boucher for his presentation. The first question I want to ask him is about a comment he made about Bank of Ireland reflecting on and learning from lessons of the past. I refer him to the Regling-Watson report on the banking crash which cited a severe concentration on lending in the property market as one of the main causes and the Honohan report which highlighted that the share of bank assets in property-related lending had grown from less than 40% before 2002 to over 60% by 2006. Bank of Ireland's figure for property-related lending now stands at over 70%. Does Mr. Boucher think Bank of Ireland needs to be concerned in any way about its exposure to the property market not only in Ireland but also in Britain?

Deputy John McGuinness resumed the Chair.

Mr. Richie Boucher

I think if mortgages were counted, the share of assets in property-related lending would be much less than 70%. I think about 15% to 16% is accounted for by commercial real estate lending which is also spread between Ireland and the United Kingdom. Mortgages are loans to people. This goes back to one of the questions asked earlier. There is a fallback on the collateral. We lend on the basis of the repayment capacity of the customer. We recognise that we have exposure to the overall property cycle. This is reflected in some of our lending practices and policies, but it would not be normal to characterise our balance sheet as 70% dependent on property assets. I concur that over 50% of our assets are in mortgages.

Deputy Paul Murphy

The figures I have show that 14% are in property and construction loans and 58% in mortgages, giving a property-related figure of 72%. Bank of Ireland is quite exposed in the British property market. Many reports in the media suggest a crash is inevitable or likely or possible at some stage in the near future. What impact would it have on Bank of Ireland?

Mr. Richie Boucher

We must always monitor on an ongoing basis how much capital we have and whether we could survive a very severe downturn. From our perspective, a severe downturn could include a fall in property prices, including commercial real estate and mortgages, of more than one third. We must ask ourselves whether we have sufficient capital to withstand not just the absolute quantum of such a fall but also its circumstances, that is, the depth of the recession, the level of unemployment and the fall-off in incomes which would result. We believe we have robust capital resources. Clearly, if there was to be such a collapse on such of a scale, we would make much less money, but the bank would be sustainable and survive.

Deputy Paul Murphy

Let us consider a doomsday scenario and say the downturn is worse than that. The presentation states Bank of Ireland UK is separately regulated, capitalised and self-funded. However, let us say there is a collapse and property prices fall by more than one third. The effects would spill over into Bank of Ireland as a whole.

Mr. Richie Boucher

Our UK business is capitalised separately and a separately funded subsidiary. We do not have cross-guarantees. If Britain were to be obliterated by a meteorite, to use an extreme example, we would lose the capital we have invested in our UK business. However, I stress that what we call Britain is the United Kingdom which includes Northern Ireland. We must classify the countries in these terms.

Deputy Paul Murphy

How much would be lost?

Mr. Richie Boucher

Bank of Ireland would survive in Ireland, as would our other business.

Deputy Paul Murphy

How much capital would Bank of Ireland lose?

Mr. Richie Boucher

The quantum of capital we have invested in our British subsidiary is roughly proportionate to the quantum of capital in the group; therefore, the ratios are the same. We do not confirm it absolutely, but most people can work it out mathematically.

Deputy Paul Murphy

I have another related question. The presentation states attractive international franchises provide further opportunities for growth. However, they include the Post Office bank in the United Kingdom. An article in the Irish Examiner before the Brexit referendum raised the point that the venture with the Post Office in the United Kingdom and the fall in sterling had potentially exposed Bank of Ireland to the consequences of the Brexit vote. Is this one of the weak links in terms of Bank of Ireland's exposure to the negative impact of Brexit?

Mr. Richie Boucher

Anything that impacts on the economies in which we operate and any uncertainty are not good for us. I think the current prognosis is that, whereas the UK economy will be impacted on negatively by Brexit, it is not anticipated, including by the Bank of England, that it will go into severe recession. Our financial risk in British franchises is measurable and measured because it is a distribution arrangement. It is focused primarily on the consumer markets. These are distribution arrangements we have with our two principal partners, namely, the Post Office in the United Kingdom and the Automobile Association. That is our route to the market. Clearly, we take a credit risk where we provide mortgages, credit cards, car loans and so on and we must accept that risk. We believe diversification is important. Bank of Ireland and our UK business are capitalised and funded separately. The fact that we are in different businesses means that we are not overly exposed to one single economy. To go into one of the points the Deputy appropriately made earlier, we try to avoid an over-concentration of risk by having diversification. We diversify in areas we understand. We understand, particularly when we are outside our home market of Ireland, why it is that we are more competitive than others. A significant strength is the power of the distribution we derive from the Post Office in the United Kingdom and the Automobile Association.

Deputy Paul Murphy

I think Mr. Boucher will probably agree that the share price of Bank of Ireland has not been good. A consequence is that the public's shareholding through the State has seen a significant loss in value - I think of about €800 million since December 2015. To what does Mr. Boucher ascribe that fall in value?

Mr. Richie Boucher

I would go back slightly further because share prices fluctuate the whole time, depending on the market's mood. I do not think our share prices moved idiosyncratically differently from those of European banking stocks. I think we have been slightly more exposed to concerns about Brexit and the impact of the AA bond yield on our pension deficit, etc., but I do not think our share prices have been dramatically different. We recapitalised the bank in 2011 from the private sector. When we were able to do so, there was sufficient demand from the private sector at a relatively low share price of around 9.5 cent, whereby the State's investment could have been taken out completely. The Minister decided, for his own reasons, that he would follow that investment. Our share price is now about 21 or 22 cent, up 100% from what it was. Over a five-year period that amounts to a compound return of 23%. Therefore, the share price should be considered over a longer period. Clearly, we would prefer it to be higher. What we cannot do is make an absolute judgment on it. We must try to run our business as best we can and explain our strategy and investors, including the Minister, will make up their own minds.

Deputy Paul Murphy

Mr. Boucher bought shares when they were on the way down, suggesting they may-----

Mr. Richie Boucher

I have lost money over time.

Deputy Paul Murphy

Wilbur Ross who it is rumoured will be Commerce Secretary under Donald Trump also bought shares and made a lot of money. What value does Mr. Boucher think the shares have?

Mr. Richie Boucher

We consider the intrinsic value of the company. Perhaps it might please many people, but I would arrested if I was to start to try to make a prediction about the share price.

Deputy Paul Murphy

How does Bank of Ireland deal with buy-to-let properties, the owners of which are in arrears? According to the questionnaire, it has appointed 1,128 rent receivers. How does it treat the tenants living in such properties? They do not have the full legal rights that they would have in a normal situation. What is Bank of Ireland's approach to them in giving them rights and security of tenure, etc? Second, whenever Bank of Ireland has taken possession of buy-to-let properties, has it evicted tenants in order to secure vacant possession?

Mr. Liam McLoughlin

In that situation we step into the shoes of the landlord and, from a legislative point of view, adhere to the Residential Tenancies Act 2004.

We do not go beyond that, nor do we give notice periods if that is the chosen action, as it may be in some cases. We do not go beyond the regulations in that space either; we stick strictly to it. We have regular engagement with our rent receivers to ensure that legislation is adhered to.

Deputy Paul Murphy

In terms of evicting tenants to get vacant possession-----

Mr. Richie Boucher

It depends on the individual circumstances. The receiver has legal obligations to the creditors and obviously must obey the prevailing legislation.

Deputy Paul Murphy

Does Mr. Boucher have figures on how many people or properties are involved?

Mr. Richie Boucher

I do not.

Deputy Paul Murphy

Could Mr. Boucher get those figures?

Mr. Richie Boucher

It would be difficult for us to do that because that can change from time to time. In addition tenants' leases expire and at that stage the receiver might look for vacant possession.

Deputy Paul Murphy

Could we get some information covering the past two or three years on the number of properties taken over by Bank of Ireland, rent receiver appointed and tenancies that were ongoing not being continued?

Mr. Richie Boucher

I will see to what extent we can, but it may be difficult to provide that on a verified basis. As I said earlier, we can only provide information that is verifiable.

Senator Gerry Horkan

I thank Mr. Boucher for his opening statement and I thank all three witnesses for their observations so far. Much of what has been discussed has been about arrears and mortgages, which is very important and has been covered quite well.

However, I come back to some of the matters covered by Senator Conway-Walsh - I also raised it when I was in the Chair - which is the operating environment of a bank branch. Most people are willing to embrace technology as much as they can. Mr. Boucher referred to people in different life stages, which is not a phrase I had heard before, but it covers a lot. People are banking differently. Presumably with contactless technology, credit and debit cards etc., the volume of cash circulating is lower than it used to be. Where do the witnesses see cash versus non-cash transactions, where they have come from, where they are going? What is Bank of Ireland doing to try to encourage people away from cash?

Obviously there is a significant cost in dealing with cash and transporting it. I live relatively close to the Central Bank in Sandyford and I often see enormous cash deliveries being accompanied by three or four Army lorries before and after trucks and occasionally helicopters. Cash is being transported all over the country when there are lots of alternatives. Is there resistance from some customers to dealing in non-cash activity? What is Bank of Ireland doing to promote it? Obviously, there are charges on debit cards and credit cards. I acknowledge that some of them are Government charges. Is Bank of Ireland trying to encourage people to move away from pure cash and if so how? What are the barriers in that regard?

Mr. Liam McLoughlin

The Senator referred to several digital devices, including contactless cards. The bank has invested significantly in this technology and infrastructure to facilitate making that available to customers if they want. The same applies to mobile and online capability. Most of our activity is on mobile devices, as opposed to even on cards. We have made the pricing in terms of fees and charges for those digital devices significantly cheaper than paper.

On the broader question on cash, I do not have a strong view on where it is likely to go. Recent statistics from the Bank of England indicate that cash is still very prevalent and the quantum of cash in the UK has probably doubled in the past ten years.

However, we see a significant reduction in the use of cheques. There is a very significant infrastructure behind the processing of cheques. The bank has to take cheques in the 250 branches, bring them back every day to a clearing centre and process them overnight. That is an expensive process and is a significant cost, which is ultimately passed on to the consumer in charges for cheques. We see that number coming down. I mentioned the trend of 23% in the past 12 months. I believe that trend will continue.

People just like to have a wad of cash in their pockets and I do not think that number will change dramatically. We constantly point out there is a security risk to customers when they take out significant amounts of cash, both bringing it to the bank and taking it away from the bank. We are conscious of that. We support our larger business customers who have significant volumes of cash by providing a cash-in-transit service to their business so they do not have to go from their business to the branch and then from the branch to the Central Bank in Sandyford. We try to make that process as easy as possible. I do not see cash reducing significantly but I see other paper items reducing. The prices we charge customers favours the non-paper transactions, given it is a significantly cheaper means of making payment for customers.

Mr. Richie Boucher

One of the potential consequences of negative or zero interest rates is having more cash. That is becoming more of a phenomenon in countries such as Switzerland. That could have a negative impact on the circulation of money for the economy because credit is not being created. That is another risk of very low and negative interest rates. People do not see an incentive to do other than hold cash. It is using our shareholders' money. We are encouraging it because it is in our interests as well. We have quite a differential in our charging between using our payment online and using a paper transaction. We try to incentivise it that way.

Senator Gerry Horkan

Mr. Boucher spoke about very low or negative interest rates. We have talked mainly about borrowing and mortgages etc. but there is almost a zero interest rate for money on deposit. When one takes away 41% because of DIRT, USC, PRSI and various other charges, there is almost no incentive for people to have money on deposit. What can Bank of Ireland do to reward those who are in a position to save? Is there any hope for those people at all?

Mr. Richie Boucher

It costs us money depending on the type of customer. Let me use a different example. When a credit union places deposits with us, we have to create 40% of liquidity on the added charge. We have to put that back with the European Central Bank and we get charged 40 basis points. It is becoming even more bizarre that it is costing us money to take in that. Our model is that we customer-fund it. Learning some of the lessons of the past, our capital and our customer deposits should equal our customer loans. Our wholesale funding should equal the liquidity we have to hold. The incentives are relatively low other than there is nowhere else to place it. It costs us a lot of money to do that.

We have a pensions, life and investment business primarily trading under the brand of New Ireland. New Ireland was formed at the founding of the State inspired by people who wanted Ireland to have its own industry there. We provide different products. We need to ensure that customers do not immediately move from one end of the risk spectrum, which is cash or deposits, to seeking, hunting and chasing yield outside what is a normal risk appetite. We try to structure our products in that way. We spend a lot of time with customers to ensure they understand the potential risks.

I would concur with the view that quantitative easing is penalising savers and pensioners but it is trying to do something. Anyone who believes that it is the solution is wrong. The Central Bank does not believe it. It is meant to be an attempt to pump-prime the issue. Ultimately we could have some very perverse behaviours where people who are prudent are being penalised.

Senator Gerry Horkan

Mr. Boucher mentioned liaison with the British post office network. Is there any possibility of doing the same here? There was a motion yesterday proposing to enhance the offering of Irish post offices. Is there any scope to provide some of these? We talk about cashless banks. How many of Bank of Ireland's 250 branches are already cashless? How many are going cashless? When I say "cashless", obviously I mean no human interaction with tellers. Is there an opportunity for Bank of Ireland to get involved with post offices?

Mr. Richie Boucher

It would not be part of our strategy.

In Northern Ireland, we have a branch network. In England, Wales and Scotland, we do not have a branch network and, therefore, that is our route to market. A similar model with the Irish post office would not be something that would be-----

Senator Gerry Horkan

Because Bank of Ireland has the 250 branches already in existence.

Mr. Richie Boucher

We have. If we were to do that, then I would have to ask why we have the 250 branches.

Senator Gerry Horkan

There have been branch closures and relocations in the past. There are 250 branches currently. Where does Mr. Boucher see that network in two, five or ten years' time? Does he see it being a network of 250 or 300 or 80 branches?

Mr. Richie Boucher

Our strategy, which my colleague carries out, is that increasingly the branches are becoming like ambassadors in the community. The customers are bypassing them. If I give a different example which may be counter-intuitive, 90% of our small business loans, those below €300,000, are now done online or on the phone. We only introduced this service for customers. They are dealing directly with the underwriters and we are providing services outside of hours where that suits customers. The local branch's job is to identify the opportunities with the customers, to tell the customer he or she will talk to the underwriters and tell the customer what documentation he or she will need. The world is changing very quickly.

We are investing in branches because we believe that is a way to generate revenue. We have to be in the local communities to understand what is going on and where the opportunities are, but the work of the branch definitely is changing, which is changing the work of my colleagues. There are fewer and fewer jobs in our branch network for transactions. For that reason, 2,500 of our colleagues are doing some form of education supported by the bank to equip them for the new world and we are trying to move our customers with that. I cannot guarantee that we will have 250 branches. We are making a different strategy and we have to explain to our shareholders. A lot of others are closing branches and we want to try and keep them open because we think it is a good idea for us.

Senator Gerry Horkan

I am conscious of time. Many people live in the area where I was a councillor for more than 12 years. It is an older population cohort, generally of people who would have been used to a different style of banking. There are many who are loyal Bank of Ireland customers but who would say branches do not really want customers to visit, that the queues are ever longer and even the number of hatches in the branches are smaller. I queued yesterday for 24 minutes for one teller, who had to go and have a comfort break in the middle of it and left us all staring at an empty hatch, and we were only in that branch because our own branch has gone cashless. The perception exists that the bank is trying to push customers online the whole time. What does Mr. Boucher say to customers who say banks - I do not suggest it is only Bank of Ireland - do not really want customers in branches queuing for a transaction? I suppose the banks do not, but what does Mr. Boucher say to those who say they want to go in as they always did? They always used to do business in a certain way and while they accept they can do certain business online, they cannot lodge foreign cheques online. I hope the bank is working with the non-incorporated entities because they are in a limbo between business and personal. Most customers, if they can, will go online, but some are not capable of it. Some customers are not willing to do it. Some do not trust technology. What is Mr. Boucher's response to customers in that situation?

Mr. Richie Boucher

It is hard for us to provide a service to people who do not want to use technology. I would have to be honest about that. What we are trying to do is transition. As Mr. Liam McLoughlin pointed out, we are working with customers to get them comfortable with technology. If one gets customers comfortable with technology, then they can do that. On technology, most customers can work a mobile phone. They can work a remote on the television. Hopefully, our technology is not that complex. Increasingly, we are listening to customers, working on feedback and trying to make it less complex to deal with us.

If people do not feel that we want them in our branches to do business with us, then we have failed and we would have to question why we have the branches in the first place. We are putting in a huge effort, but the work and role of the branch is changing rapidly. We are trying to transition and any transition will not work completely smoothly. It is not working smoothly for us and it is not working smoothly for all of our customers, and we know that.

Senator Gerry Horkan

I have one final question. One used be able to get sterling drafts and now one cannot get a sterling draft for less than £3,000. That, clearly, has stopped many customers who wanted small sterling drafts from going into Bank of Ireland's branches because they cannot get those drafts anymore, and they are now going to the post office. That would suggest it was a conscious decision by the bank that it does not want to be providing drafts for ordinary people.

Mr. Richie Boucher

I would question why and there is this example. I have nieces and nephews who live in England and one likes the idea of a draft if one is sending something for their first communion or whatever but they get hit with a £20 charge on the other side. One is diminishing significantly the value the beneficiary gets. Anywhere in the euro area, and in Britain, one can transfer by merely getting the IBAN of the person. That person is guaranteed to get the money when one sends it. The world is changing. I would question why any consumer would have a desire to send a sterling draft to someone because the beneficiary, that is, the person one has sent the money to, gets whacked with a big charge by his or her own bank.

Senator Gerry Horkan

Is it communicated in the branches, and out to customers, that the bank is not doing bank drafts anymore for that reason?

Mr. Richie Boucher

There is a variety of reasons. It also would come down to trying to educate the customers as to the implications, for us and the customers, of using one service or another. The provision of a foreign cheque or a sterling draft is not good news for the person who receives it. He or she would far prefer to receive it electronically as he or she will know when they have got it. One is not asking, "Did you get that yet?"

Chairman

I thank Senator Horkan.

Senator Kieran O'Donnell

I welcome Mr. Boucher and his colleagues.

I will deal with the topic about the branches where the bank has not got a teller. Mr. Boucher may be aware that the bank has taken tellers out of a branch in Caherdavin, in Limerick city. It is the first branch in the mid-west where this has been done. The branch is used predominantly by an older population and the residents in the area have come to me. Sixty of them, many of them elderly, held a dignified protest outside the branch. I have spoken to the bank's regional management, who, in fairness, have been amenable to meet. Bank of Ireland is creating branches where customers effectively meet machines when they go in. I accept the bank has staff there to assist them. However, I would have always recognised Bank of Ireland as very much the old-world bank. It was the bank that had that image and gave that perception. I have two questions. Why Caherdavin? It is a big issue. The residents in the area asked me to bring it up with Mr. Boucher, and that is my role. I would ask, "Why?"

Mr. Boucher made reference to closing branches and I do not like that kind of talk. Bank of Ireland states it does not wish to lose customers. Mr. Boucher might explain the logic. He made reference to the 4%, but this particular branch in Limerick has a high concentration of older customers. The question is whether branches are perceived as being cost centres or profit centres. Why was Caherdavin picked, why is the bank moving towards this model of having a branch where there are only machines and what will there be in future? Customers have an attachment to their local branch. They have an attachment to their local manager and staff. These are hugely important. One can pay for all the advertising in the world on television, radio and elsewhere but the teller behind the counter is a hugely significant positive advertisement for the bank. Will Mr. Boucher outline for me the logic behind why the bank, specifically, in Caherdavin in that region, is moving towards that model where it is removing all tellers and why the bank would not have a teller over time, maybe for one morning a week? Will Mr. Boucher deal with that issue for me?

Mr. Richie Boucher

I will primarily ask my colleague to deal with it but I will answer at the absolute strategy level. As I have said, if we have to close a branch then there is a failure on both sides. We are a commercial organisation. I have heard others nearly boasting about the number of branches they have closed.

If we have to close, it is a commercial failure, which we do not like, but we are changing the role of the branch. I referenced earlier the massive amount of training and education my young colleagues are doing. We have no desire to close branches. If we have to, we have to, but that is the choice - either the branch evolves or we close. We are making significant investment because we believe, in our own enlightened self-interest, that supporting local communities in doing business in local communities gives us a commercial advantage and makes us sustainable in the longer term. That is our strategy. My colleague undertakes that strategy. Perhaps Mr. McLoughlin will address that aspect

Mr. Liam McLoughlin

We employ 27 Bank of Ireland staff in the Caherdavin community.

Senator Kieran O'Donnell

Five of those are dealing with customers. The other part is a back office facility.

Mr. Liam McLoughlin

There is a back office facility. The challenge here is to see how to make it commercial. We have seen in Caherdavin and other locations that the quantum of paper transactions going to the cashier is down. We are trying to see if we can keep the employment local by giving them other activities on behalf of the whole 250-branch network. That is what we have done with the colleagues upstairs in the Caherdavin branch. We are pushing the model to see how we can keep the employment in the community.

Senator Kieran O'Donnell

I have a proposal for Mr. McLoughlin, which I have put to his colleagues. It went from a Friday where there was a full-time teller to a Monday where there was none at all. People want to move with the times but they need a period of time. Was it Dougal who said "Too quick, too far, too soon"? Perhaps Mr. McLoughlin might look at backing up. I think Father Dougal said it in "Father Ted".

The point I am making is that the bank might look at a practical measure which would be to bring in a teller for an hour a morning and over time evolve that situation. It effectively went cold turkey and it was too severe. It is something I have asked Mr. McLoughlin's colleagues. I do not wish to name them. They have been good enough to meet us with the residents but it is something that is important to people. I ask Mr. McLoughlin to evolve it over time.

Mr. Liam McLoughlin

I hear the Senator's feedback.

Senator Kieran O'Donnell

I would say Mr. McLoughlin is aware of it.

Mr. Liam McLoughlin

There was no cold turkey. From a regulatory point of view, as much as anything else at all, customers are obliged to be given 60 days' notice so while it happened from a Friday to a Monday there would have been notice in advance.

Senator Kieran O'Donnell

With due respect, that was not the case. I have put the proposal to Mr. McLoughlin and ask him to look at it. It is something that is hugely important to people on the ground.

Chairman

It is important to Senator O'Donnell.

Senator Kieran O'Donnell

It is good to get it reaffirmed.

Chairman

I can see the national side of the Senator's position also.

Senator Kieran O'Donnell

Caherdavin is the first branch the bank has done in the mid-west. I am assuming the bank is looking to roll this out nationally. The bank has done it in a number of branches in Cork as well. I feel the way the bank has rolled it out is too severe. People should be told that the teller service will reduce over time. What happened here was people were not aware that the tellers were going. I ask Mr. McLoughlin as a measure of goodwill to look at putting a teller in for an hour a morning so that people become familiar with what the bank is proposing to do. They like the branch staff. The bank runs a good show there. That is the first question.

I am assuming the bank is committed in the long term to providing a branch in places like Caherdavin.

Mr. Liam McLoughlin

I will take the Senator's feedback on board. I will take it away.

Deputy Sean Sherlock

Will Mr. McLoughlin throw in a few tickets for the All Blacks game while he is at it?

Mr. Liam McLoughlin

We have an extensive branch footprint across Limerick city. We have invested in a new branch, as the Senator is aware, in the last three months as well. Limerick, as a number of locations, is important to us. It is a significant business footprint. We will bear that in mind.

Senator Kieran O'Donnell

The non-performing loans are €9.1 billion and the default loans are €8.1 billion, which is about €17.2 billion. Am I correct in my summation?

Mr. Richie Boucher

I beg the Senator's pardon. No, it would be incorrect to add the two together. The difference between €9.1 billion and €1.1 billion is primarily what we call probationary mortgages. If we have done a sustainable restructure with the customer, they stay in what is called probationary for 12 months.

Senator Kieran O'Donnell

Are the default loans incorporated in the €9.1 billion?

Mr. Richie Boucher

The defaulted is effectively €8.1 billion.

Senator Kieran O'Donnell

In essence, if I take non-performing and default together it is €9.1 billion. Is that correct?

Mr. Richie Boucher

That is correct.

Senator Kieran O'Donnell

I just had a quick look back at the bank's figures in 2005 and the loan book was more or less the same. It was about €80 billion at the time. It is about €78 billion at the moment. Am I correct in that analysis?

Mr. Richie Boucher

I am sorry, I cannot remember back that far.

Senator Kieran O'Donnell

The bank has a provision of nearly €5 billion for impairment. Is that correct?

Mr. Richie Boucher

Yes. It is about 56% covered under non-performing loans.

Senator Kieran O'Donnell

The bad debt provision was about €300 million back in 2005. How healthy is the bank's balance sheet?

Mr. Richie Boucher

We believe it is strong. The rating agencies believe it is strong. We cannot always believe them but three separate rating agencies have us as investment grade and for a positive outlook. We are very heavily scrutinised by regulators, the Central Bank and investors. Our capital ratios are certainly stronger than they have ever been. Non-performing loans are an issue. The non-performing loans have come down by 50% from their peak. In the past nine months, they have come down by approximately €3 billion, so they have continued to reduce right across our cohorts. They are still too high.

Senator Kieran O'Donnell

In the first six months, the bank brought it down by €2 billion but it has only come down by about €0.8 billion in the months since then. Is it fair to say that the bank's new lending is static and it has a hard core of non-performing loans in the order of about €9 billion and that it is effectively trying to boost new lending by the purchase of impaired loans from other institutions? Is that a fair commentary? What procedures does the bank have in place to fully address these non-performing or default loans of €9 billion?

Mr. Richie Boucher

Commentary is always commentary. I cannot comment on whether it is fair or not. We look at it from our perspective. The €9 billion includes probationary. If we focus more on the €8 billion, that has come down by about €2.4 billion since the beginning of the year. I am conscious in the sense as an accountant, one gets to the law of numbers. Once one comes to a certain level, that proportion momentum will reduce.

Senator Kieran O'Donnell

We appear to be getting into a hard core now. How does Mr. Boucher propose to deal with that?

Mr. Richie Boucher

As a bank, one will always have a proportion of non-performing loans. I would say that around 4% or 5% is more normalised if there is a very diversified portfolio. The key thing from a capital point of view and a sustainability point of view is whether the bank has provided sufficiently for potential loss on both the specific and model basis. We think we have. We are seeing write backs where the economy is improving and collateral value is increasing. Mostly our write backs come from where we have provided against the potential of default of a customer and then restructured that customer. Then that customer moves out of default, that is, the customer's loan is on a sustainable basis.

The purchase of loan books is the cream on the cake from our perspective. My colleague, Mr. McLoughlin, and my other two colleagues, who run our British and corporate divisions, are required by me and our shareholders to achieve their business objective targets without the purchase of loan books, that is, by engaging with existing and potential customers on a customer-by-customer basis. We see opportunity. If people are exiting the market, we see an opportunity to gain new customers. Our new lending in the first nine months of the current year was €9 billion. Our balance sheet shrank but €2.4 billion of that was actually non-performing loans coming down. That is good redemptions. We disclose to the market in the six months at the end of June. For the following three months our core loan book, excluding non-performing loans and trackers which are amortising, grew.

Our new lending is growing from the customers from whom we are making money.

Senator Kieran O'Donnell

When Mr. Boucher states 4% of loans are non-performing, is it his target to take another €5 billion off the non-performing loans?

Mr. Richie Boucher

Yes, over a period of years.

Senator Kieran O'Donnell

Over how long a period?

Mr. Richie Boucher

A period of years, I cannot give an absolute prediction but 4% to 5% seems to be the general figure in a normalised economy and a normalised system.

Senator Kieran O'Donnell

I have a final question for Mr. McLoughlin. Is Bank of Ireland moving towards a branch network where there will be no tellers?

Mr. Liam McLoughlin

We look at the model of ongoing business. I spoke about the number of transactions being lower. We look at how the bank will engage better with the community. One aspect of the model is driven by business engagement for start-ups and, in that context, we opened a new centre in Limerick last week. The issue is how we engage customers differently. It is almost bringing business development into the bank. We are pushing the model of the enterprise town initiative, we have 100 enterprise towns and we have five running this weekend. We are running our second enterprise week this year during this week. The model is based on engagement in the community and engaging with our customers more directly. We have sector specialists in the business world. The job of 14 agri-specialists is to be visiting farms all day every day. It is much more a case of a one-to-one relationship with the customer and in the community rather than actually investing in bricks and mortar.

Senator Kieran O'Donnell

I am thinking of older customers.

Mr. Richie Boucher

I suspect we will always have some tellers. However, I also suspect that in the coming years the number of tellers we employ in our branch network will continue to reduce. It is difficult to imagine that we will never have a teller anywhere in the bank. The number will reduce.

Chairman

Before the meeting, we furnished the witnesses with a number of questions in order to be helpful during our exchanges this morning. We asked how the bank's share price performed in the past six months, in the past year and in the past two years. The response was that Bank of Ireland share price performance is a matter of public record. That may be so. A number of questions were answered in that way. I think it would be far more helpful for the committee if the relevant information were provided to members when they pose questions prior to a meeting. It is a quick reference for us for what essentially is a short meeting. I think the bank would be seen as being more forthcoming with information. I know it is in the bank's annual reports and other reports, but for members it is helpful if the information they seek is provided.

Mr. Richie Boucher

What we will do is provide links. The question on share price performance is extremely broad. The share price can fluctuate from day to day, hour to hour. We can provide a link to the information.

Chairman

I am not dealing just with that specific question. Let me give another example of a response. Bank of Ireland provides details of disclosure on its property and construction portfolio. Other questions are answered in that way. My suggestion is that the bank would broaden out on the information that is requested.

Mr. Richie Boucher

We will strive to do that, but sometimes it is important that we give the entire disclosure. In some cases we must say that one needs to read the entire disclosure. An answer to a specific question, without giving the rest of the disclosure could be misleading. That is one of the issues we have. I understand-----

Chairman

Perhaps Mr. Boucher might look at the questions that can be answered in a manner that would not be misleading. This would lead to the committee obtaining a reasonable picture in respect of the questions asked.

Mr. Richie Boucher

For sure.

Chairman

I am just asking for the type of information-----

Mr. Richie Boucher

That is our desire, Chairman.

Chairman

We have the committee secretariat at our disposal but if information is provided in the way I have outlined, it helps us in the context of our morning's work.

I refer to question No. 3 that was put to the bank. When things went bad, what was the total amount of money the Bank of Ireland received from the State?

Mr. Richie Boucher

It was €4.8 billion, of which €3.8 billion was for the purchase of equity or preference shares and €1 billion was a contingent capital instrument.

Chairman

What would have happened if the bank did not get that support at that time?

Mr. Richie Boucher

Who knows? I do not know.

Chairman

Surely it would not have been a positive picture for the bank.

Mr. Richie Boucher

For everyone, I suspect.

Chairman

That is fair enough. This relates to what people think about banking generally and the fact that the banks received the support of the State. What we are coming to now is the bad debt within the bank that cannot be readily serviced. The experience I have had with customers of banks - not just those of Bank of Ireland but right across the sector - is that the banks are now back up on their feet but that those who are still struggling in their homes and families are being treated badly. While Mr. Boucher states that there is an individual approach and solution to most of the problems relating to borrowing in the bank, the amount of hardship that Bank of Ireland and others have inflicted on individual borrowers by chasing them for repayments is significant. It would be remiss of me were I not to say to Mr. Boucher that I believe he treats people badly. I am talking about people who are willing to attempt to repay but who, for one reason or another - they are in the same boat as the bank was it got the €4.8 billion from the State - do not have the capacity, either in terms of their families or their businesses, to get back on their feet that easily. While the bank has offered them solutions or is working with them to identify such solutions, matters are extremely difficult for them. Mr. Boucher stated that the level of repossessions is likely to increase. We have seen the repossessions up to now. Bank of Ireland got €4.8 billion in support from the State, which it has paid back. However, people who borrowed from the bank and who are attempting to repay their loans are not, in my view, getting a fair deal from the bank.

Members of the committee asked whether Bank of Ireland lobbied or made submissions on the mortgage-to-rent scheme and the answer from the bank was "No". Some people might think that is fair enough but do not. The witnesses operate at the coalface and they know from the various statements that they have taken from individuals and families that the latter are in real trouble. There should be an obligation on the bank - working with the State - to devise some sort of strategy and policy to ensure that the people in question are not evicted from their homes. It shocks me when I read the various reports - and I know there is another side to the story - relating to how people are evicted and treated.

Mr. Richie Boucher

Chairman, I am not a spokesperson for the Irish banking sector.

Chairman

Mr. Boucher is a spokesperson for Bank of Ireland, so will he give the view from the bank's perspective.

Mr. Richie Boucher

I am a spokesperson for Bank of Ireland. From Bank of Ireland's perspective, the bank quite rightly repaid the State's investment. In order to do that, we had to make tough decisions with our own business and we had to make choices. We had a responsibility - as everyone does - to make reductions in the number of people we employed, to restructure our businesses and to raise private capital. We had to make choices. In an ideal world, some of those choices would not have been made. However, we had to make them and we were obliged to sell businesses. Ultimately, we repaid the taxpayer. We are not asking to be thanked for that. That was our responsibility. A lot of our competitors have not repaid the taxpayer but I cannot speak for them. I cannot speak for their practices. We have an ultimate responsibility. We also have a responsibility to the providers of our capital, our depositors and all of our other customers who are doing their best to meet their repayments. What I continue to stress - again because it is a matter of public record, anything I say is verified or verifiable - for customers who engage with us on mortgage arrears, is that we can meet the need of 90% of them but for the other 10% we cannot. We cannot solve every issue in society.

Chairman

Does Mr. Boucher not accept that the bank created some of the problems for those people through the lending criteria that was set out in those years that brought about these loans and mortgages, particularly for businesses that diversified? Does the bank not have a responsibility to those people - families and businesses - who make up the SME sector in this country to work even harder with them to ensure they can be brought across the line in some way, shape or form, either by keeping their family home or beginning to perform again in an economy that needs them?

Mr. Richie Boucher

I absolutely agree that we have to behave responsibly towards everyone. As I have said, and repeat now on the record, we can restructure 90% but we cannot help everyone. In answer to an earlier question -----

Chairman

But-----

Mr. Richie Boucher

If I could just finish. In answer to an earlier question, I noted that roughly 50% of our owner-occupier mortgage holders who are more than 720 days in arrears have not paid a single euro to us for years. Where is the responsibility on that side? There is a responsibility on both sides. Both sides enter into an agreement. We work with our customers and strive to do the best for them. We have a responsibility to our shareholders, the providers of our deposits, our other customers and to society as a whole. We recognise that but we cannot solve every single situation.

Chairman

In the context of that responsibility to society as a whole, the bank must take into account that it gave those people the money in the first place and maybe that money was given on poor grounds. The bank has a responsibility, not just to work with those people but to make submissions to the Government outlining the fact that a certain cohort of borrowers simply cannot repay and that the bank will have to repossess, thus thrusting more people onto the housing waiting lists around the country. I believe that the bank has that responsibility because we created this - all of us - in the first place.

Mr. Richie Boucher

We did not give the money to anyone - we lent it.

Chairman

I know that.

Mr. Richie Boucher

We lend money.

Chairman

Yes, but if the bank had not got €4.7 billion from the taxpayer it would not be in business today and we would not be asking these questions.

Mr. Richie Boucher

Yes, but if we did not maximise and get back the cash that we are owed, we would not have been able to repay the taxpayer.

Chairman

I understand that Mr. Boucher but there are families out there in difficulty. Senator Kieran O'Donnell was referring to a community issue and I am saying that right across the country, there are families in deep distress. Some of them have lost members through suicide because of the impact of the banking crisis. It is in that context that I say that the bank has a responsibility to work with the Government to highlight this fact.

A Bill will be passed in the Dáil in the near future - the Courts Bill 2016 - which I call the eviction Bill, which will return jurisdiction for these matters to the Circuit Court. Have any of the witnesses before us attended the courts to see at first hand what happens when bank representatives appear for cases where repossession is being attempted?

Mr. Richie Boucher

I have been in courts where repossessions happened, although not recently. I sit in on calls when my colleagues are dealing with customers in arrears. I have personal experience with people who have lost businesses. Indeed, my own family has experienced that. It is not as if I do not understand. I do not agree with this characterisation that we do not understand. As a human being, an individual, I have seen what happens. That is why we have the responsibility to lend responsibly and to try to get back the money we are owed.

Chairman

The bank did not lend responsibly in the past and that is what brought us to where we were. My point is that families appear in front of-----

Mr. Richie Boucher

I have been the CEO of the bank since 2009 and we are doing that-----

Chairman

-----of the registrar and the courts and I have sat in on such cases. I am horrified that the State allows the courts to carry on in the way they do. It would appear that the bank is well heeled, in terms of its representation but the individual family on the other side of the argument cannot even afford a sandwich at lunch time when the court breaks. That is how badly they are treated and-----

Mr. Richie Boucher

That is the Chairman's perspective.

Chairman

I absolutely understand that the bank has a commercial imperative. However, we have come from a situation that was so bad that the bank was helped by taxpayers' money. When we are dealing with that group of people who are trying to pay but simply do not have the money - as opposed to those who will not pay - we must take a different approach. I would like to see the bank making a submission to the Government outlining the profile of these people and how they can be helped, not just by Bank of Ireland but by the Government itself. The Government is devising strategies and policies which may not suit the profile of the people we are discussing. That is all I am saying. I understand that there is not much humanity or compassion in any of the banks.

Mr. Richie Boucher

I would not agree with that characterisation at all. I think that is unfair and wrong.

Chairman

Which characterisation?

Mr. Richie Boucher

That we do not have compassion or humanity. That is wrong.

Chairman

I have not seen much of it and the clients that come to me have not seen it.

Mr. Richie Boucher

I do not agree. Our responsibility was to give back to taxpayers the money invested in the bank. Let the taxpayers decide how they spend their own money or how that money is utilised through their elected representatives. It is not our job to tell taxpayers how their money should be spent. Our job was to get the taxpayers' money back and we have done that.

Chairman

Yes, but when the bank wanted the taxpayers' money, when its doors were closing, it turned to the Government and got that money. I am simply asking, out of humanity and compassion and based on my experience with the registrar and the Circuit Court, that for the cohort of people who are facing repossession, the bank would inform the Government of what it believes could save them, that is, what policy or action could be taken on their behalf. I am talking about the people who are trying, those who are pushing themselves to the pin of their collars trying to repay Bank of Ireland and other banks. I am not being personal - I am talking about the banking system. That system was saved but is not responding to a genuine group of people who are attempting to rebuild their lives. This is having a terribly negative impact on society. It is horrific to watch it, both in the courts and in the family homes that I have visited.

Mr. Richie Boucher

I would encourage any customer to talk to us. We do not want to be in court. As I have said on a number of occasions, at this meeting and elsewhere, we can work with the vast majority of our customers. Customers have nothing to lose by talking to us.

Chairman

Does Mr. Boucher see any merit in making a submission to the Government or the Department of Finance regarding the attempts being made by these people so that they might look at the possibility of providing support to them?

Mr. Richie Boucher

We are available to any arm of the State to discuss our experience and what we have seen working in other countries. We work in different jurisdictions and there are actions that might work here. We are available to any arm of the State.

Chairman

I know that but out of humanity, compassion and understanding, would the bank make a submission, based on its experience, regarding what might be a reasonable policy for these people? I am not asking the bank to abandon its commercial position. I am asking it to provide a greater understanding to the Government of what is going on. I will ask all the banks to do the same. Some of them have behaved disgracefully.

Mr. Richie Boucher

We will work with the Irish Banking Federation on an ongoing basis on ideas that can help people to retain their homes and to enable viable business to survive. It is in our interest to do that.

Chairman

All I have heard this morning is Mr. Boucher saving his bank. I have not heard much about what I am talking about and that is what I am trying to explore with Mr. Boucher now. We might speak to the Irish Banking Federation as well.

Mr. Richie Boucher

We have restructured 25,000 owner-occupied mortgages. That is a lot of restructuring. The amount of restructuring we are doing has gone up, month on month and year on year. We are doing as much as we possibly can but we are always looking for ways to improve and I agree that we should do so.

Chairman

There is still more to do.

Mr. Richie Boucher

For sure, always; we are never fixed as a bank. We are always trying to get better.

Deputy Michael D'Arcy

I think the Chairman went over his time.

Chairman

If the Deputy had told me that, I would have stopped.

Deputy Sean Sherlock

There was nobody here to do that. With all due respect, he is chairing the meeting.

Deputy Michael D'Arcy

Does Bank of Ireland do any analysis of the demographics of branches? If the branch's model is being altered, does the bank look at any demographics?

Mr. Liam McLoughlin

We conduct research and profile demographics.

Deputy Michael D'Arcy

Does it include the age of the population and the age of the customers?

Mr. Liam McLoughlin

Yes.

Deputy Michael D'Arcy

Senator O'Donnell referred to an area that sounded like it was an older area. Does the bank target particular areas that have an older or younger population? Is there a reason that particular area was selected?

Mr. Liam McLoughlin

We do not target particular areas. The Deputy may have missed it earlier when we spoke about the model of banking. People's behaviour, not only in banking, is changing dramatically. There is a significant move in people's behaviour towards digital activity, for example when booking flights and everything else as well. That is not just for younger people. I know a significant portion of mature people who use mobile phones to book flights. There has been a big shift in that area.

Deputy Michael D'Arcy

I have to disagree. I ask that Bank of Ireland does a demographic analysis or provides the criteria to the committee for the analysis of how they change the model of a branch. I am sure the bank has its statistics and data. If the demographics of the area show it has an elderly population, the bank should not go down the route of going cashless, teller-free or of lowering the number of tellers.

Mr. Liam McLoughlin

It has not been our experience that elderly people cannot use digital technology. That has not been our experience.

Deputy Michael D'Arcy

There was a protest outside the branch Senator O'Donnell mentioned. What was the branch?

Senator Kieran O'Donnell

Caherdavin.

Mr. Richie Boucher

This characterisation of older people as being incapable is-----

Mr. Liam McLoughlin

It is not our experience.

Mr. Richie Boucher

-----not our experience.

Deputy Michael D'Arcy

I will be very blunt. Older people do not like new technologies.

Mr. Richie Boucher

That is a sweeping characterisation. It is an amazingly sweeping characterisation.

Deputy Michael D'Arcy

I am only giving Mr. Boucher the experience that I have with people. They do not like going to the machines. I will move on. Does Bank of Ireland do write-offs? Does it write-off amounts of loans?

Mr. Richie Boucher

We provide accounting write-offs. We look to maximise all of our recoveries.

Deputy Michael D'Arcy

Does the bank give a write-off to an individual if the loan is impaired or in difficulty?

Mr. Richie Boucher

It is not our policy. We look to maximise the recovery.

Deputy Michael D'Arcy

That is not the question I asked. Does the bank do write-offs, yes or no?

Mr. Richie Boucher

I have answered the question.

Deputy Michael D'Arcy

The bank looks to maximise its recovery.

Mr. Richie Boucher

Yes.

Deputy Michael D'Arcy

Does the bank do write-offs? That is the question I have asked.

Mr. Richie Boucher

I have said that we maximise recovery. We do accounting write-offs. Our accounts show that we do accounting write-offs.

Deputy Michael D'Arcy

Pardon?

Mr. Richie Boucher

We look to maximise the recoveries that we get.

Deputy Michael D'Arcy

I understand that statement but I have asked Mr. Boucher if Bank of Ireland does write-offs, yes or no? It is quite a simple statement.

Mr. Richie Boucher

If there is a liquidation or a bankruptcy, then clearly there is a write-off.

Deputy Michael D'Arcy

Only in liquidation or bankruptcy. The bank does not do a voluntary write-off?

Mr. Richie Boucher

No. That is not our policy.

Deputy Michael D'Arcy

Has the bank done write-offs? Apart from it being the bank's policy, sometimes there are exceptions to policies.

Mr. Richie Boucher

If there are, they are an exception.

Deputy Michael D'Arcy

So the bank does write-offs, but they are only an exception to policy.

Mr. Richie Boucher

The Deputy is trying to twist what I am saying.

Deputy Michael D'Arcy

I do not mean to.

Mr. Richie Boucher

The Deputy is. He is trying to twist what I am saying.

Deputy Michael D'Arcy

I do not mean to. I have asked Mr. Boucher the same question. He has answered a different question.

Mr. Richie Boucher

I will give the Deputy the same answer. We could go on all afternoon, if the Deputy wants.

Deputy Michael D'Arcy

That is a matter for the Chairman, not for Mr. Boucher.

Mr. Richie Boucher

If the Deputy asks me the same question, I will give him the same answer. That is the Deputy's choice.

Deputy Michael D'Arcy

Has Bank of Ireland done write-offs? That is a different question.

Mr. Richie Boucher

As I have said, we seek to maximise the recoveries in situations. Where there is a legal requirement to do a write-off, we will do a write-off. In some cases, in corporations or businesses, where the business is a limited liability company and we cannot get the money back, then we do a write-off. In some cases we will convert debt for equity.

Deputy Michael D'Arcy

Has Bank of Ireland given a voluntary write-off outside of the standard policy?

Mr. Richie Boucher

It depends what one determines as voluntary.

Deputy Michael D'Arcy

Pardon?

Mr. Richie Boucher

We certainly would not volunteer to write-off something.

Deputy Michael D'Arcy

Without progressing to legalities, has Bank of Ireland given write-offs?

Mr. Richie Boucher

I cannot say that we never have. I do not know.

Deputy Michael D'Arcy

Mr. Boucher does not know is the answer.

Mr. Richie Boucher

I do not know forever and a day whether or not at some stage in Bank of Ireland's history there was a voluntary write-off.

Deputy Michael D'Arcy

Will Mr. Boucher find out please? It is a very relevant question.

Mr. Richie Boucher

We disclose in our accounts anything we have done. That is our requirement.

Deputy Michael D'Arcy

I have asked the question and I am looking for the answer. Does Bank of Ireland-----

Mr. Richie Boucher

I have given the Deputy the answer I can give him.

Deputy Michael D'Arcy

He cannot give the answer is what he is saying.

Mr. Richie Boucher

I have given the Deputy the answer I can give him. That is what I have said.

Deputy Michael D'Arcy

I am not satisfied with the answer. I would like to know. Mr. Boucher has many staff in his head office, I am sure he will be able to find out whether Bank of Ireland has given voluntary write-offs or not. It is quite a direct question. I am asking for it to be answered. If Mr. Boucher cannot answer it here, I can accept that but I ask that Bank of Ireland has a look to see if that has happened or not.

Mr. Richie Boucher

Our accounts disclose our practice, I cannot go beyond that.

Deputy Michael D'Arcy

The accounts disclose an amount of funds for write-off. Outside of legalities and outside of liquidation, has the bank given a voluntary write-off or not?

Mr. Richie Boucher

I will not go beyond our accounts.

Deputy Michael D'Arcy

Mr. Boucher will not answer it.

Mr. Richie Boucher

I have given the answers in our accounts.

Deputy Michael D'Arcy

Mr. Boucher is being very unhelpful.

Mr. Richie Boucher

I am being as helpful as I can as a CEO of a public company.

Deputy Michael D'Arcy

What was the discounted amount on loans transferred from Bank of Ireland to NAMA?

Mr. Richie Boucher

About 35%. I can confirm that. It is a matter of public record.

Deputy Michael D'Arcy

Bank of Ireland was the lowest discounted at 36%. What happened to the discounted amount that transferred across?

Mr. Richie Boucher

That was a write-off.

Deputy Michael D'Arcy

I just wanted to clarify that.

Mr. Richie Boucher

We had sold something. We got less than it was valued-----

Deputy Michael D'Arcy

It was a write-off.

Mr. Richie Boucher

-----and it was written off in our accounts.

Deputy Michael D'Arcy

I know that. What was Mr. Boucher's salary for 2015?

Mr. Richie Boucher

It was €690,000.

Deputy Michael D'Arcy

What is the projected figure for 2016?

Mr. Richie Boucher

It will not have changed.

Deputy Michael D'Arcy

Is that value for money in terms of a CEO's role for €690,000?

Mr. Richie Boucher

Every year I stand for re-election by our shareholders. At the time I stand for re-election, they also vote on the remuneration and 99.5% of the shareholders voted for my re-election and my salary. That is their decision. I do that every year; I stand for election and my salary.

Deputy Michael D'Arcy

How many people vote in that?

Mr. Richie Boucher

The shareholders vote. We have thousands of shareholders. As with any company, one's vote is a per-share vote. Our shareholdings are held through investment institutions, individuals-----

Deputy Michael D'Arcy

I understand.

Mr. Richie Boucher

I am happy to give some advice on how to get that vote.

Deputy Michael D'Arcy

Mr. Boucher is very kind.

Deputy Pearse Doherty

Shane Ross is not entitled to a vote this year.

Mr. Richie Boucher

Sure.

Deputy Michael McGrath

He has divested himself of his shares.

Deputy Michael D'Arcy

There was an agreement between Bank of Ireland and the State on the parliament building on College Green. What is the situation with that?

Mr. Richie Boucher

After we had repaid the taxpayers' investment, we thought it was appropriate at that time that we did something else. There had been some discussions about our main branch and cash centre in College Green. We have refurbished and donated for a period of ten years a dedicated space for use by the State for exhibitions and other issues that it might decide relevant to that.

Deputy Michael D'Arcy

The Chairman touched upon the issue of the moneys that went in at the appropriate time. When I say the appropriate time I mean the bank's cashflow was gone and the bank was in a very difficult state. Would Mr. Boucher not consider going further with the parliament building?

That particular building on the Green should have been donated back to the State. Mr. Boucher's institution would have folded without the support of the State.

Mr. Richie Boucher

I think most people would prefer cash. We have €4.8 billion. We have given back €6 billion and the State also holds shares worth €1 billion. Most people would prefer cash in their pockets, but the building is always for sale if anyone wants to buy it. Every one of our assets is for sale at the right price.

Senator Michael D'Arcy

When an institution is saved in that way, there is the cash aspect. There is also the altruistic nature of an institution and the prospect that it should have donated it back, perhaps for €1.

Mr. Richie Boucher

We received €4.8 billion and have paid back €6 billion. The State still owns a voluntary shareholding of 14%. The reason we received the investment was that we would be able to fulfil our function in ensuring there would be an economy that would prosper. It is also in our interest, given that we are the largest lender into the economy, having repaid the State. The capital we received was from private sector shareholders who believed Ireland would recover and that our bank would recover. It is their money; it is not Richie Boucher's. It is our shareholders' money.

Deputy Michael D'Arcy

I am aware of that. In the light of-----

Chairman

The Senator's time is up.

Deputy Michael D'Arcy

I will finish on this point; the Chairman has been indulgent to me. I have seen Mr. Boucher's interaction with committee members on the write-off and it seems to rankle with him. Most institutions with which I deal - I deal with Bank of Ireland and others - engage in write-offs in particular ways. Has Bank of Ireland participated in the warehousing of difficult loans, namely, loans under stress? It has been brought to my attention that a percentage of a loan that is not performing is warehoused. The anticipation and the agreement is that when that period of warehousing expires, the loan will be written off. Is Bank of Ireland operating in that manner?

Mr. Richie Boucher

Absolutely. It is a contractual arrangement. In the case of a business, where there is limited liability, we say there is an A loan which is what the business can sustain. Very often there were activities outside the business and the customer needs time to sell them - that is a B loan. If the customer performs for three years, contractually, we will write off the balance. It is not voluntary. The Senator is asking me a question about voluntary write-offs. That is a contractual arrangement. We do a deal on an arm's length commercial basis. That is a commercial-----

Deputy Michael D'Arcy

The concern is that banks are involved in this arrangement which I would support if it was the right thing to do, but, effectively, their balance sheets are being worked on on the basis that these loans are warehoused and that they will be written off at some stage in the future. Potentially, their balance sheets are not as strong as they look on the day.

Mr. Richie Boucher

No. If I were looking at and thinking about it, I would be looking at our provisions. We are fully provided for. As we have provided for it, that is included in the provision. We give the customer an incentive, as in a commercial transaction; if he or she meets his or her terms of the contract, there will be an incentive at the end. As a commercial organisation, we understand how incentives work. There is an incentive for us and an incentive for the customer. We have provided fully for this on the basis that we have to be prudent, given that we may not get the money back. In fact, we are unlikely to get it back. They are contractually agreed write-offs, but I am not conscious that we provide for voluntary write-offs. I cannot see why a commercial organisation would volunteer to write off money.

Deputy Michael D'Arcy

I suppose to get some of it back.

Mr. Richie Boucher

How would one get back something that one had written off?

Deputy Michael D'Arcy

By agreement, contractually.

Deputy Sean Sherlock

I want to refer to lending to small and medium enterprises, SMEs, in particular. Mr. Boucher will be aware of Horizon 2020, the €80 billion European Union research and innovation programme which has given rise to the InnovFin fund from which Bank of Ireland, in partnership with the European Investment Fund, EIF, has an opportunity to avail of €100 million. How much of that €100 million has been divested for new lending since October 2015 when Bank of Ireland did the deal with the EIF?

Mr. Richie Boucher

I am sorry, Deputy, but I do not have that information to hand. However, I can give it to the committee because I am sure it is a matter of public record. I suspect it is not the full €100 million, but I will come back to the Deputy with the information.

Deputy Sean Sherlock

I ask the question because I have a sense that at branch or regional level - I do not know if agriculture comes into that component - there is a lot of new lending to SMEs in gearing up for the position post-milk quotas. There is a lot of investment in agricultural lending also, but I have not seen any documentation or publication from Bank of Ireland on lending in the technology sector. If Bank of Ireland is not lending in the technology sector, an elemental part of the InnovFin fund, is it because there is reticence on the part of banks - I believe Bank of Ireland is the only bank that has drawn down funding from the InnovFin fund - to lend in the technology sector as the risk profile might be too high? I am trying to gain an understanding of where Bank of Ireland sits on lending in sectors other than, for instance, agriculture or traditional SMEs.

Mr. Richie Boucher

I will ask my colleague to take that question.

Mr. Liam McLoughlin

It is specialist lending. We have changed our model in the past couple of years and appointed a number of very experienced external non-bank sector specialists across ten areas, including technology and long-term health care services. Network and business lenders are very conscious that availing of such a lending opportunity would be referred to the head of technology sectors. In fact, this year we have increased the head count in the technology research area. In terms of our branches, we have picked out five locations where we offer a start-up opportunity to technology companies. We opened one in Limerick in the past two weeks and two weeks before that we opened one in Cork. By their nature the teams are very specialist. Interestingly, they comprise non-bankers led by non-bankers, but they know to whom they should refer that kind of lending opportunity and we have a skilled and central team to look at the matter.

Deputy Sean Sherlock

Is Mr. McLoughlin telling me that Bank of Ireland is lending in that sector?

Mr. Liam McLoughlin

Yes, we are.

Deputy Sean Sherlock

It is actively engaged in lending.

Mr. Liam McLoughlin

Absolutely, yes.

Deputy Sean Sherlock

Would it be possible for somebody to contact me or come back to the committee on the way that lending which is vital is emerging? If the economy is expected to grow and we are talking about the traditional lending profile, we will have to start looking at other areas such as the technology sector and start-ups, in particular.

Mr. Liam McLoughlin

Given the specialist nature-----

Deputy Sean Sherlock

To finish the point, Bank of Ireland will have to carry risk and the question is whether it is overly conservative about carrying some of it. We are all watching closely to see how the fund of €100 million will be divested.

Mr. Richie Boucher

There are two elements, namely, lending and equity. If we end up with equity, we have usually made a mistake, but we provide capital through specialist companies such as Kernel Capital and Delta to provide equity because that is their specialist skill. We look to engage in lending on top of this. As my colleague, Mr. McLoughlin, has pointed out, we recognise that some of these skill sets are not natural to bankers; therefore, we have hired people from the external sector and are training them in lending. It is easier to train someone to lend than it is to train someone to be a technology specialist.

Deputy Sean Sherlock

Mr. Boucher mentioned Kernel Capital. I am familiar with Kernel Capital in Cork which is part of its footprint. How many jobs were created or what is the level of economic output as a result of investments by companies such as Kernel Capital, for instance? I am trying to gain an understanding of the matter. I do not expect Mr. Boucher to have the answer to that question now, but if somebody could revert to me on it, I would be very grateful.

Mr. Richie Boucher

As Kernel is a partner of ours, I cannot volunteer it. I can volunteer my own colleagues to do stuff, but we will ask it and I am sure Mr. Olden will be pleased to co-operate.

Deputy Sean Sherlock

How much new business does the bank generate from the national enterprise week? It has been firmly in the mix for quite a number of years and it is good profiling at local level for businesses, but does it generate new business for the bank or is it just a marketing tool?

Mr. Richie Boucher

It would be a very expensive marketing tool if that is what it was. There are a number of aspects to it. I agree with my colleague's idea but my perspective on it is that, first, it reminds our colleagues that we are in business to do business and not merely to shuffle paper around. It is good for my colleagues to see people starting businesses and trying to sell products. That is one of the most positive aspects of what I call our "workbenches". My colleagues see, on an ongoing basis, what it is like to try to start a business, to be in business and - to use one of the Chairman's examples - to experience what it is like for our customers. That is a very important aspect. We might get 35% of the growth in the economy but if we can do our part in helping the economy grow, to get businesses to grow-----

Deputy Sean Sherlock

We are under the cosh time-wise. I know Mr. Boucher has been here for a few hours and I am grateful for that. Are there definitive metrics in terms of the national enterprise week? I know he bolsters his troops to go out and generate new business. That is part of his modus operandi. What I am trying to understand is whether it generates new lending and new business and whether it works as a tool.

Mr. Richie Boucher

We hope it does but I would strongly say that if we judged it solely by the amount of new deals that Bank of Ireland might generate over the following three months, that would be the wrong thing to do. That is my personal belief.

Deputy Sean Sherlock

I want to ask about lending to the agricultural sector. I come from Cork and represent a dairy production area. Where is the Bank of Ireland with respect to the other banks in terms of competing for new business in that space? Is it highly competitive or behind the curve?

Mr. Richie Boucher

The Central Bank of Ireland's statistics that judge categories of industry would show how much new lending is done. We believe we have done approximately 50% of that. The vast bulk of that new lending - this relates to an earlier question but is quite a different matter - has been for land, where a farmer plans to expand his farm. We found that most farmers fund new milking parlours and so on primarily out of cashflow. Most of the new agri-lending is for farm expansion. We try to be competitive on price and structure. We were the first bank to recognise the lessons of the past, namely, that the dairy industry is a cyclical industry. We were the first bank to bring in a flexible loan. We saw how it worked in other countries. Recognising that it is a cyclical industry, if a farmer is granted a seven-year loan, typically we would amortise on a sliding scale of seven years. We recognise that there will be periods when cashflow will be stronger and when the customer can speed up the repayments. During periods when cashflow is weaker, customers pay the interest but they do not have to pay the capital. As Mr. McLoughlin pointed out, we recognise that we had a skills deficit, so we have hired people - including from banks that have exited the market such as ACC - with experience of the sector because we need to learn as well. We are trying to invest in capability, product features and, obviously, in the provision of capital.

Deputy Sean Sherlock

Regarding the Caherdavin example, it is not that we believe older people are not engaging with technology. It would be futile for anybody to suggest that because we are probably the closest to the people on the ground in that we represent them every day of the week. The angst in regard to the branches and how they are evolving relates to the deficit in the personal relationship. While people of all ages can engage with the bank's 365 online model - and that can lead to subsequent phone calls with a person - the concern is about the one-to-one banking relationship. It is in that context that we are to articulate the point regarding places, such as Caherdavin, where the bank has flashpoints. It is not an ageism issue. I am a customer of the excellent branch in Mallow. I have a relationship with the people there. Over the years, however, there has been a diminution of the traditional relationship, particularly in respect of people going into the branch to discuss new lending or borrowing for day-to-day services. That is the point we are trying to articulate. Traditionally, the pillar banks always had that relationship with the person on the street. We recognise that the Bank of Ireland must evolve and move to a certain point and that there are cost elements involved, but it should not throw the baby out with the bathwater and move completely to an online process. If it were to do that, customers might leave. Customers need to know they are being listened to and they need to have eye contact with an official in the bank if they are transacting new business or even dealing with daily transactions. Does Mr. Boucher understand the point I am making?

Mr. Richie Boucher

We fully appreciate that point. Human contact with people on the ground is hugely important to us. That is why we have retained those colleagues. I am proud of those colleagues who are investing in their education and skills base to be fully qualified as professional people to interact with customers. I would be the first to admit that as we go through a transition period, we will not get everything right. We are listening and trying to figure out what works. We are trying to make this work because if it does not work, then we have a problem as a commercial entity. If customers feel that we do not want to talk and engage with them, then something has gone wrong in what we are trying to achieve. What we are trying to achieve is that balance between being a commercial organisation and being efficient. If we do not have customers, we do not have a business. We can be as efficient as we like but if customers do not want to do business with us, then the shareholders would boot me out pretty quickly. We have to manage that but we would be the first to admit that we will not get this perfectly right all the time and we have to evolve.

Deputy Sean Sherlock

The bank has taken a big stake in rugby sponsorship. I am a Munster supporter.

Senator Kieran O'Donnell

We are all Munster supporters.

Deputy Sean Sherlock

It is welcome that the bank has a large footprint in the provinces. Is it possible for Mr. Boucher to answer how much that sponsorship is costing the bank and whether a proportion of that is filtering down into encouraging young people, male and female, into the game? My thinking here is from a CSR perspective, as opposed to mere sponsorship and getting the name out there.

Mr. Richie Boucher

I cannot disclose that figure because it relates to a commercial arrangement with the different entities. It is an extremely important part of our pitch. Our pitch to Leinster Rugby and Munster Rugby was that it was not just a financial commitment on our behalf. It was important to us because it filtered into the local communities and we said that it would have Munster flags. It was particularly an issue for Leinster, so one of our big pitches to Leinster at that time was there would be a financial benefit to it but that it would guarantee that it would move beyond Dublin 4 with our branch network and our ability to do that. That was my pitch to Mick Dawson at that time. It is hugely important for us. That sponsorship does not work for us unless it is seen to be relevant to the local communities in which we operate. Sometimes I am accused because I am from more of a rugby background but it is harder for us to do that with, for example, the GAA. We work with the GAA in different ways We believe strongly in sport and community sport and that is a very important part of what we do.

Deputy Sean Sherlock

Mr. Boucher mentioned flags and Leinster. We are talking about corporate sponsorship and we are all interested in the growth of the game. I am interested in discovering whether parcels of that funding go into the development of the game among young people in particular. Mr. Farrell is nodding his head. Is there a message that Mr. Boucher wants to impart about how he is concerned about the future of the game and that this is not merely corporate sponsorship and about flags?

What I am trying to tease out is whether that sponsorship actually enhances the game.

Mr. Richie Boucher

An extremely important part of our sponsorship is that we understand how Leinster Rugby and Munster Rugby are going to expand and develop the game. If it was only for the professional team, then I do not believe our shareholders would have got the value they should get from any money we spend. An important part of it is how Munster Rugby and Leinster Rugby use the money we provide, as well as the other money they generate from elsewhere, to grow their playing base and so on. As someone who is interested in the game, it has been interesting to see how rugby has expanded outside of its traditional support base and player base into women's rugby and more non-traditional areas. The co-operation with the GAA and other sporting communities has been interesting too. As a father and as someone in my local community, I believe involvement in sport and having young people of different skill bases and interests involved in sport is an important part of developing the community. That is something I aspire to personally.

Chairman

I did not ask a question about the pensions deficit.

Mr. Richie Boucher

If we look at our pension schemes on an actuarial basis, then any valuation of the schemes would conclude that they are probably at or close to being fully funded and that there are no deficits. From an accounting perspective, we are forced to use the double-A European corporate bond. Quantitative easing has driven that down and that has an accounting impact. However, the schemes are strong, robust and viable. We are going through our process of tri-annual valuation of our main schemes. We provide the information to the pensions authorities and they are robust. This has an impact on our capital and what I tried to say earlier - it is a market disclosure - is that the movement of the bond yield has changed this artificially. On accounts, my colleague is an accountant and there are other accountants present, so I have to be careful. The discount rate, which is not really related to the underlying schemes, has moved with the movement of the bond yield but the schemes are strong and robust in their own right and are economically doing everything they should be doing.

Chairman

The Bank of Ireland in the UK is a different entity. Is that the case?

Mr. Richie Boucher

We are required to have our UK business as a separately capitalised and separately funded body. It is regulated by the Bank of England. However, there is co-operation between the regulators.

Chairman

The company was fined there recently. Is that correct?

Mr. Richie Boucher

Yes, we would have been.

Chairman

How much?

Mr. Richie Boucher

I imagine it is a matter of public record but I do not have it at the top of my head.

Chairman

Did this happen in Spain or another country?

Mr. Richie Boucher

I am sorry, Chairman. If it is a matter of public record, I can come back to you.

Chairman

You are not responsible. It is different entity. Is it within the bank? It is a part of Bank of Ireland?

Mr. Richie Boucher

I am very clear. In the case of anything that happens in the Bank of Ireland group, ultimately, I bear the responsibility for it. If it happened in one of our subsidiaries, that is something but I am not aware of the particular issue. I am aware we were fined but I would have to check that.

Senator Gerry Horkan

There was a reference to a deficit of €736 million at the end of September. I gather the figure was quoted by LCP Ireland, which carried out a study on various pension deficits. Admittedly, the deficit was down from over €900 million. Anyway, Mr. Boucher maintains that the schemes are robust and that the pensioners and staff members who are contributing and so on can rest assured. Mr. Boucher is not of the belief that there is any great difficulty in the long run. Is that the case?

Mr. Richie Boucher

Our pension schemes are doing everything they should be doing. There have been sacrifices by the beneficiaries of the schemes. The company also has put in money with the agreement of our shareholders. I believe they are strong and robust. It is an accounting convention. On an economic basis, the schemes are robust and strong.

Senator Gerry Horkan

That was a topic Deputy McGrath, myself and the Chairman wanted to go over.

I do not agree with the issue about older people. I believe older people are more than willing to embrace technology when and where they can. However, as I outlined earlier, technology does not cover every point on every transaction. Maybe in the future it will. Maybe no one will be getting cheques any more. Maybe no one will be getting foreign dividends. Maybe no one will need a teller. I do not know how we will get foreign currency without a teller. Maybe we will have machines dispensing sterling for when we need it and so on.

It is fair to acknowledge that Bank of Ireland has been either the best performing or the least worst performing of our traditional banks in recent years. Let us go back 20 years to when Northern Bank became National Irish Bank, which then became Danske Bank. It has gone. Permanent TSB has been more or less nationalised, along with AIB, EBS and Irish Nationwide. Anglo Irish Bank is gone. It is fair to acknowledge that Bank of Ireland has performed well. I am keen to acknowledge innovative moves. For example, we see cash transactions and ATMs in shops and pubs. Money is being recycled from the shop into the ATM and into the community. That means fewer cash transfers.

We are saying people like cash. Mr. Boucher alluded to perverse behaviour. I do not believe it is in anyone's best interests to have large amounts of cash at home under the floorboards because they would rather not put it in the bank on account of negative interest rates. Mr. Boucher is effectively saying that it is costing the bank money to keep money on deposit. Is that what he was suggesting?

Mr. Richie Boucher

Under the liquidity requirements and the regulations, money from other financial institutions is considered differently. We cannot count it and therefore we have to buy Government bonds or put it on deposit with the Central Bank. That costs us money. Our model for our consumer and business customers is to have their money. Some big things have happened. They may be related to interest rates but they also show activity in the economy. One thing we have noticed – this is disclosed in our accounts – is that our current account balances have continued to grow. To us, that is always a sign of activity in the economy. It represents an early sign that commerce is taking place.

Senator Gerry Horkan

There is a €20 charge per year on almost every account. I do not believe other banks are doing that to the same extent. Does Mr. Boucher see that changing? Does he see it being eliminated? It was introduced at a time when the bank may have needed every penny or cent it could find. Let us suppose a person has three or four accounts for various reasons. That person could be hit with €100 worth of charges, even if the accounts have thousands sitting in them. Is there any hope for people, other than golden years customers, to see their way out of that? Like Deputy Sherlock, I am speaking as someone who is a customer.

Mr. Richie Boucher

One of our jobs is to identify if there is a way that a customer can deal with us in a cheaper way. We have to be honest. Nothing in life is free. Someone can try to tell me that something is free, but I am paying for it somewhere or through some mechanism. We try to be more transparent about what it is. It costs us money to have staff doing different things with regard to our investments and branches. It costs us money and we have to try to recover some of that.

Senator Gerry Horkan

I accept that transaction charges are transaction charges. However, it is different to have an account. It might sit there doing little and transaction charges apply anyway. A charge of €20 is a significant amount for people simply for having an account in existence. Perhaps the bank is trying to introduce the charge in order that people will rationalise their accounts or reduce the number of accounts, although I am unsure.

Mr. Richie Boucher

We try to make it as efficient as possible for customers. However, if something costs us money, then we have to try to recover it.

Chairman

I asked Mr. Boucher a question referring to the UK HM Revenue and Customs. HM Revenue and Customs took the Bank of Ireland to task last year.

Mr. Richie Boucher

That was a tax payment which we had fully provided for. It related to a tax transaction undertaken in 2002, 2003 or 2004, if memory serves me correctly.

Chairman

When did the bank pay £24 million? Was that last year?

Mr. Richie Boucher

That was it. There was a tax that the UK authorities said was due and so we paid it.

Chairman

Another settlement of €60 million was made in the Supreme Court of Spain. Is that correct?

Mr. Richie Boucher

I remember now. That was a transaction where we had a commercial dispute with a party in Spain. We lost the commercial dispute and therefore we paid up. Again, we had fully provided for it. My apologies, Chairman. I did not fully pick up your question properly earlier.

Chairman

I think that is it. I thank the delegates for their attendance and the information given.

Mr. Richie Boucher

I am conscious that there are a number of things on which we said we would come back. We will check with the Chairman's colleagues on the best way to do this.

Chairman

Before we adjourn, we were speaking about meetings next week. We want to give the clerk some flexibility in the setting of times because the late meeting on Tuesday might present a problem. We have to check with the Minister of State at the Department of Finance, Deputy Eoghan Murphy, about the meeting on Wednesday. Is that agreed? Agreed.

The joint committee adjourned at 1 p.m. until 2 p.m. on Tuesday, 22 November 2016.