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Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach díospóireacht -
Thursday, 28 Sep 2017

Banking Sector in Ireland (Resumed): Permanent TSB and KBC Bank

We will now deal with matters relating to the banking sector in Ireland. We have before us the chief executive officer and his colleagues from Permanent TSB. I welcome them to the 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. Members are reminded of a long-standing parliamentary practice to the effect that Members should not comment on, criticise or make charges against a person outside the House, or any official by name in such a way as to make him or her identifiable.
I invite Mr. Masding to make his opening statement.

Mr. Jeremy Masding

I thank the Chairman and members of the committee for the invitation to today's meeting. My colleagues and I look forward to a constructive engagement with the committee, as we have enjoyed in our previous meetings. I am joined today by my colleagues Stephen Groarke, chief risk officer; Shane O’Sullivan, director of operations; and Ger Mitchell, HR director and accountable executive for the CBI tracker reviews.

I do not propose to spend too much time on these opening remarks. However, I would like to emphasise the continued focus that we have in transforming PTSB into a vibrant Irish retail and SME bank while continuing to sort out legacy issues. The good news is that we are now spending more time on the former and less on the latter.

In this regard, I have five key messages. First, Permanent TSB is now well positioned as an operationally profitable, well-governed business which makes an important contribution to the Irish economy and which will, over time, complete the repayment of the generous financial support it received from the taxpayer at the time of the crisis. The bank is now competing strongly and is providing financial support and backing to people across the country. For example, we have substantially grown our share of the mortgage market in the past 12 months in particular and that strong growth has continued right up to the present; we are performing very well in respect of current accounts; we maintain a strong deposit base; and we are now beginning to see the fruits of the investment in our new SME business. Indeed, last week we had a presence - for the first time in many years - at the National Ploughing Championships with many people in the agriculture and associated sectors welcoming our return to the market.

We are performing well and that has been reflected in upgrades for the bank over the past year from each of the three rating agencies which cover us, Moody's, Standard & Poor's, and DBRS. We are about halfway through the transformation of the group and, on balance, we are on track versus the original vision set in 2012.

Second, a strong Permanent TSB is a goal worth fighting for. Everybody wants more competition in the Irish banking market and that is what we are providing. We are a relatively small institution taking on, and taking market share from, two pillar banks. We are doing it through many channels - branches, phone, mobile, online and intermediaries. We are working with more than 2,700 staff employed in communities across the country and underpinned by more than 100 years of history. I believe that is something to be valued.

Third, having successfully navigated a range of seemingly insurmountable obstacles since the financial crisis, my colleagues and I are now focussed intensely on building out our customer franchise; dealing with the issue of non-performing loans; ensuring we have the right levels of capital for unexpected losses; and generating sufficient profitability to invest in the future. There will be significant movement on these issues in the months and years ahead and I am sure we will discuss this in some detail this morning.

Fourth, we are always mindful that our decisions have very real consequences for our customers, many of whom may be dealing with other issues and pressures. However, a failure to make the right, sometimes-tough decisions also has consequences. Therefore our aim is to be responsible and fair in dealing with customers but not to avoid taking the hard decisions we need to take in order to be able to serve our full customer base and, of course, to grow a sustainably profitable business.

Let us take mortgage arrears as an example. So far, we have offered long-term solutions to more than 30,000 mortgage customers thereby allowing those customers and their families to remain in their homes. For those to whom we have so far been unable to provide a solution or who refuse to engage with us, we must, ten years after the financial crisis, use all the tools at our disposal in as fair a manner as possible to find resolutions.

Finally, I am very proud of what we have achieved at Permanent TSB and I am a passionate advocate of the bank and of my colleagues - perhaps sometimes too passionate. However, I know nothing we have achieved would have been possible without the steadfast support of the Government and the taxpayer since the financial crisis began, for which I and my colleagues are deeply grateful.

I believe that the best way of repaying that support is by building a profitable, well-governed business of which this country can be proud. We have not completed that journey yet and there will, no doubt, be further challenges to overcome but we are well on the way to achieving that goal and we will not rest until we get there.

I thank the members for allowing me the time to make these opening remarks. My colleagues and I now look forward to their questions.

Cuirim fáilte roimh an Uasal Masding. I thank him for his attendance and for his passion on behalf of the bank and the State obviously because we own the bank. In his opening statement he did not mention the tracker mortgage scandal. Permanent TSB was the bank that took customers through the Financial Services Ombudsman to the Supreme Court. It unleashed this issue and brought it to the public attention. We need to thank the arrogance of the bank in doing that because now we know that 15,000 people were caught in this scandal. What progress has the bank made in addressing the tracker mortgage customers?

Mr. Jeremy Masding

I thank Deputy Pearse Doherty for his question. As he knows the bank had to undertake essentially two pieces of work. The first piece of work, as he rightly pointed out, is that ours was the first bank to announce a CBI-agreed redress and compensation scheme. For those customers we have predominantly finished that programme. In terms of the second programme, like the remainder of our colleagues in the Irish banking system we are working with the Central Bank to complete what one might call the CBI tracker review. We believe we have - give or take - finished that review and we are awaiting the final findings from the Central Bank.

Mr. Masding told us previously 1,372 customers were involved. All those customers have been put back on to the appropriate tracker rates and redress offers have been made to all those customers. Is that correct?

Mr. Jeremy Masding

Yes.

In what percentage of cases has money been paid back into customers' accounts?

Mr. Jeremy Masding

I ask Mr. Mitchell to give the Deputy some facts on both programme A and programme B.

Mr. Ger Mitchell

From the original programme from July 2015 some 98% of the 1,372 customers have been fully redressed. We are trying to get in contact with a small number of customers. We have made six formal attempts to contact people to close out the scheme. Fewer than 20 people remain to be closed out on that. Over 98% have accepted fully the redress programme.

The other 2% less the number the bank has not been able to get in contact with are appealing the redress the decisions. Is that correct?

Mr. Ger Mitchell

No. The less than 2% are the people we are trying to get in contact with.

How many people are appealing?

Mr. Ger Mitchell

The total number of appeals has come in at just over 250 customers.

That is about a sixth.

Mr. Ger Mitchell

It is about 18%.

Does the bank include them as people who are fully redressed?

Mr. Ger Mitchell

We include those people. They have accepted the compensation we have offered as part of the remediation programme. Those customers have chosen to go to the appeals panel, which is independent and supplementary. This does not prohibit the customers from taking their cases to the Financial Services Ombudsman thereafter. A total of 18% of those customers have appealed and-----

Come on, seriously, 98% have been fully redressed but 18% of those are actually appealing the redress programme. That is an abuse of statistics. Mr. Mitchell gave the impression that 98% of the 1,372 customers have been paid. That was the question I asked.

Mr. Ger Mitchell

Yes.

With regard to people who have made an appeal, has money been paid back into their accounts?

Mr. Ger Mitchell

Yes.

When somebody takes an appeal, the original compensation is restored to them.

Mr. Ger Mitchell

When customers engaged with the organisation with regard to the appeal, a compensation scheme to which all customers were entitled was agreed. Customers then had the right to furnish an appeal to one of two appeals panels. There was an independent review panel and a customer's appeals panel. The independent panel was for those at a very advanced stage in the legal process or for those who may have lost a property. The other appeal panel was for customers who had not experienced loss of ownership or were not at an advanced stage in the legal process. Those appeals were submitted. A total of 18% of the 1,372 decided to progress and appeal, and 27% of them have been successful.

Let us pretend I am one of the affected customers of Permanent TSB and the bank has written to me stating the redress for the money I have lost plus compensation is €20,000. I decide to appeal this because the bank has not taken into account the hardship it caused to me and the financial burden on me and my family. Is the €20,000 paid into my account as my appeal is going on?

Mr. Ger Mitchell

Yes.

How many of the customers within the 18% have been successful in their appeals?

Mr. Ger Mitchell

A total of 247 customers have lodged an appeal to either one of the panels, and 27% of those customers have had their appeal either upheld or partially upheld by the appeal panel.

That is more than 50 individuals.

Mr. Ger Mitchell

It is 67. A total of 67 customers out of the 247 have had their appeal upheld or partially upheld by either one of the panels.

So for 5% of the bank's customers, what the bank offered them in the redress programme was inappropriate according to the internal appeals process. With regard to the 579 others identified as of September 2017, will Mr. Mitchell explain from where this figure comes and what does it mean?

Mr. Ger Mitchell

Mr. Masding has outlined the original mortgage redress programme, which was stage one. It was announced in July 2015. We commenced work on the instruction of the board to conduct reassurance work across our entire book in September 2015. In December 2015, the Central Bank announced an industry-wide tracker review. As part of this tracker review we assessed our entire book across the four key guiding principles of the Central Bank framework, which are contractual rights, regulatory obligations, transparency and influencing factors. We conducted this review throughout 2015 and 2016. We completed phase 2 of the review and submitted our report to the Central Bank in line with an agreement with it on 30 June. Within the programme of work we identified 579 additional customers who would require redress.

So there are 579 on top of the 1,372. Of the 579, have all of them been put onto the appropriate tracker rate?

Mr. Ger Mitchell

All of those customers have been, or are in the process of being, put onto the correct rate.

So they are not all back on the tracker rate.

Mr. Ger Mitchell

A total of 75% of the customers are on the correct rate, and the rest are being put on as we speak and over the course of the next couple of weeks.

Why are more than 120 people still not on the appropriate tracker rate?

Mr. Ger Mitchell

There are two reasons, which are the timing of the review and the fact that the complexity of each case is somewhat different. There is not a homogenous way of flicking a switch and putting everybody onto the correct rate. There must be an amount of rebuild per account. It takes longer for some complex cases rather than the simple ones.

This review has been ongoing for quite a period of time. When did the second part start?

Mr. Ger Mitchell

Is the Deputy referring to the second part of the review?

Mr. Ger Mitchell

The second part of the Central Bank review commenced on 22 December 2015.

We are now into September 2017, and Mr. Mitchell is telling me the bank does not have the capacity or expertise, or has not selected resources, to focus on the fact the bank has again taken money wrongly from its customers, 125 of them in this case, who have still not been put onto the appropriate tracker rate, never mind being offered or being told they will get so much money back because the bank wrongly took the money from them. It is not acceptable. I say this on behalf of individuals out there. We have gone through all of this before. I do not believe the bank is learning a lesson. It is not acceptable for the bank to wrongly charge customers. Mr. Mitchell is sitting here telling us the bank is wrongly charging customers. What are we supposed to do as representatives of the Irish people? Are we to say that it is okay? It is not okay. It is not acceptable. It calls for immediate restoration onto the appropriate tracker rate, but the witnesses have come in here and think it is somehow acceptable that 125 Irish citizens are on the wrong tracker rate at a bank owned by the State. All of this causes hardship. I have gone through this before. It causes mental stress. Some people have lost their homes and others cannot have operations or dental surgery. All of this hardship caused to individuals is documented in letters I have received, as I am sure colleagues in the meeting room have. When will all of the customers be put onto the tracker rate?

Mr. Ger Mitchell

We expect that all customers will be on the correct tracker rate over the course of the next four weeks. As I said to the Deputy, we completed the phase 2 submission of the report. There was outstanding assurance work to be completed to ensure each and every case was handled properly and correctly. The focus was on doing it correctly and properly once as opposed to getting it wrong for a second time.

When will the bank write to each one of those customers and inform them of how much money the bank has taken wrongly from their accounts?

Mr. Ger Mitchell

It is happening in tandem, and all customers will be on the correct rate and all customers will be written to and remediated fully before the end of the year.

I welcome the write-off announcements in terms of buy-to-let. We focus on the negative here, but there are positives in the bank, and I acknowledge this, with regard to writing off residual debt in buy-to-let. The banks need to get real and get to an end line on the problems in terms of residual debt. How many individuals does the bank expect to take up this offer? How many have taken it up to date? Why is it not available with regard to principal dwelling homes? Is the bank in any way minded to replicate what AIB has just done with David Hall's organisation regarding the rental scheme, with the residual debt being written off?

Mr. Jeremy Masding

I will ask Mr. O'Sullivan to answer these questions. My understanding is the questions are on the buy-to-let and the number of customers who have taken it up, how we will think about replicating this for principal dwelling homes and our approach to mortgage to rent.

And residual debt.

Mr. Shane O'Sullivan

I thank the Deputy for his comment on the buy-to-let. When we announced this, we stated we would work with a cohort of buy-to-let customers. That cohort is up to 1,000 borrowers and we have been doing this in recent weeks. At this stage, we have written to approximately 600 of those customers. The proposition, with which Deputy is familiar, allows the borrower to take 30 days to consider the offer. The first 30 days for customers will elapse over the coming days. As the Deputy might expect, at this stage the number of those who have taken it up is quite limited, but certainly our interaction with customers is very good and there are certainly a lot of customers who will take up the offer.

We have a slightly different proposition for home loans. The Deputy may be familiar with the fact we have spoken to the committee about an offer whereby if customers pay up to 20% of the shortfall the bank is minded to write off the remaining shortfall. The way we see this progressing for home loan customers is through the mortgage-to-rent scheme. We are actively working with a preferred partner. We are conscious the scheme has been significantly overhauled. We welcome this overhaul and we want to participate in a very material way. Our expectation is that up to 2,000 customers could avail of mortgage to rent. With mortgage to rent the shortfall is written off in its entirety.

It is our hope that customers will see the refreshed mortgage-to-rent scheme for what is it but clearly, that is a borrower decision.

Will the witness indicate when Permanent TSB would be in a position to announce its agreement, hopefully with its preferred partner, around a new ramped up, revamped mortgage-to-rent proposal?

Mr. Shane O’Sullivan

We are hopeful that by end of the year all the different parties that are working this through would be in a position to announce where they have got to. Our preferred partner will go through a process with the State agencies to be selected as a partner we can work with. We are hopeful they will come through that process and when a scheme is announced we are preparing to write to up to 2,000 of our customers. We hope to commence that communication from the beginning of next year.

I thank the witness.

I thank the witnesses for their presentation. Could I start by asking for their assessment of the overall financial health of Permanent TSB? As the figures show, the numbers of mortgages in arrears in private dwelling homes and in buy-to-lets have come down substantially, based on reduced payment, arrears capitalisation and the various schemes to which the witnesses have referred. The figures for non-performing loans are, however, still high. I believe the bank set out a medium-term target of reducing it to high single digits. The European average is around 5% or 6%. How would the representatives characterise the overall financial health? If 2007-08 was to happen again how would the bank fare in such circumstances?

Mr. Jeremy Masding

Good morning Deputy. On the financial health of the bank I will start with the balance sheet. On the liability side of the balance sheet we are growing customer current accounts and our deposit base remains stable. Our equity base, as members are aware, was strengthened through the initial public offering that we delivered in 2015 and we also have some other capital instruments. In terms of funding, the balance sheet is much stronger than it was. Perhaps the best example of that is when this team started the bank's funding gap - into which we had to borrow money from the European Central Bank - was more than 40% of the balance sheet. It is now pretty much down to zero. I believe this is an indicator of strength.

I shall now turn to the asset side of the balance sheet. On new mortgages, we have picked ourselves up off the floor, dusted ourselves down and now our mortgage share is far into double digits. When one considers that it was 2% a few years ago, I believe we are putting compelling propositions into the market. As I said in my opening remarks, our desire is to continue to challenge the pillar banks and to provide choice for customers, which I believe we are doing.

With regard to the stock of assets, the Deputy is correct that our non-performing loan, NPL, ratio is elevated at 28%. I will make two points in this regard. Members will be aware the bank has a restructuring plan under which we were obliged to deleverage a significant amount of assets. Many of the cohorts of those assets were actually performing assets. If we do the maths on that the denominator has actually fallen but the numerators have stayed the same. By definition the 28% has increased. I do not think that is necessarily fair on the team because we had to deleverage some assets. Members may recall that last year we had just completed the sale of our UK business, which essentially was a performing business.

Then we get to the NPL ratio, which therefore exists and the 28% is split into two halves. Some 15% of the 28% is actually treated but because of the nature of the treatments they stay in NPLs. It is our job to work those through over time. On the 13%, I would argue that ten years after the crisis, as per my previous remarks - and certainly it is five years since we as a team attempted to solve the NPL crisis at the bank - the team needs to move to resolution. Mr. O'Sullivan has given some examples whether it be buy-to-let deleveraging, assisted voluntary sale or mortgage-to-rent. These are the schemes we need to get to.

I will move on to the profit and loss account. Our net interest margin, which is a key indicator, was 70 basis points when this team started. It is now more than 180 basis points. This gives us the cash to fund growth. In respect of our operating expenditure our cost-to-income ratio is too high. It is more than 70%. That is why we must continue to grow the business in asset growth and in managing the costs. The cost of risk is coming down but it is still high. The bank still has a stock of assets from the crisis in which there still are some defaults. We must manage that flow of defaults.

When everything is taken together, we are operationally profitable, which we have not been for a decade. We are growing market share. We know that the NPL challenge is probably the last big hurdle that we need to try to overcome before, I hope, we give something back to Ireland; a small, well-governed retail bank that competes against the pillar banks. I am pretty clear on the vision. I suggest to the committee that the financial health of the bank is much better but there is still more work to do. I hope this answers the Deputy's question.

I thank Mr. Masding. Question 13 on page 17 relates to how many owner-occupier and buy-to-let mortgages have been sold to investment vulture funds and other financial service providers. The bank does not really give a figure; it gives an amount of money and the scale of the portfolio that was sold. Does Mr. Masding have an idea of how many mortgages on properties were sold as part of that portfolio? Last year it the bank had the figure for this as 5,600.

Mr. Jeremy Masding

I will have to come back to the Deputy with that number. The deleveraging under the restructuring plan was the first wave of deleveraging. We have not undertaken any scaled deleveraging - none at all I believe - since the restructuring plan commitments were delivered. The numbers members have from the past submission are probably the same numbers today because we have not moved in to the next wave.

Mr. Stephen Groarke

Needless to add with regard to Capital Home Loans in the UK, which is a subsidiary we have sold with a portfolio, from memory there were nearly 10,000 loans within that entity. These were predominantly professional buy-to-let investors. In selling that portfolio we have been very sensitive to the fact that this is predominantly buy-to-let as opposed to home loans.

Does Mr. Groarke have any idea what happened to the tenants in those properties? Were tenants evicted after the loans were sold?

Mr. Stephen Groarke

That was a performing portfolio so the purchaser effectively bought the yield on the mortgages. The level of arrears in that book was extremely low. There would have been an extremely low level of repossessions.

Mr. Groarke does not have any figures.

Mr. Stephen Groarke

We will come back to the Deputy with those figures, but I can assure him it was a low number.

My question is more about whether the bank collates those figures. Does the bank take into account what will happen to those people currently in those homes when making decisions on to whom it will sell loan books?

Mr. Jeremy Masding

We have a very disciplined process. One of the tests is that we ensure the buyer complies with the relevant Irish regulation at the time in respect of consumer protection.

If the witnesses could come back with those figures it would be very helpful. My other related question is on the buy-to-lets. If we add together the figures for assisted voluntary sales and the voluntary surrender we get 787. This is an increase of some 90 on last year's figures. Do the witnesses have any idea whether tenants were evicted in any of those circumstances to achieve vacant possession?

Mr. Jeremy Masding

I will ask Mr. O'Sullivan to respond on the principle. I do not have the data. Perhaps we should have a common understanding of buy-to-let deleveraging and what we can and cannot do.

Mr. Shane O’Sullivan

In terms of the 787 figure, the key word is "voluntary".

The buy-to-let customers worked with us to sell the property to get the best price or alternatively they returned the keys and asked that we sell the property on their behalf. We appoint a managing agent to work with tenants where tenants are in place in the case of a voluntary surrender. We abide by the lease and the Residential Tenancies Board, RTB, guidelines. We honour our commitments and work with the tenants.

Is Mr. O'Sullivan saying that tenants are not evicted? I appreciate that it is voluntary but it is voluntary for the landlord as opposed to the tenant.

Mr. Shane O'Sullivan

Ultimately, they are. When we sell single properties, we sell them vacant. There are a number of reasons for that. Our duty is to the borrower and is to get the most open market value price we can to reduce the outstanding debt. We do not want to deny first-time or trading-up buyers an opportunity to buy properties. However, between when the keys are returned and the vacant sale, we appoint a managing agent. That agent will be cognisant of the existing lease that tenants have and of the guidelines set by the RTB. We will work accordingly but ultimately the property will be sold vacant.

So Permanent TSB abides by the lease, lets the time run out and then the tenant is gone. I appreciate that as Permanent TSB is set up, it has commercial obligations and tries to maximise its profit etc., but from the perspective of being a primarily State-owned bank, it contributes to the housing crisis in doing so. A big source of people becoming homeless is eviction from tenancies, including in circumstances like this.

Mr. Shane O'Sullivan

I accept that. Our primary obligation is to the borrower who has the mortgage with us. Our duty of care is to that borrower but we are cognisant of the consequent impacts. It is our duty to receive the open market value for the borrower and for the State, which has a large shareholding in the bank, and it would be wrong not to offer the property to first-time buyers and trading-up buyers. If we were to limit it and sell it with the tenants in situ, the price we would receive would consequently be lesser because one would have fewer people interested in viewing the property. Our primary obligation is to the borrower, to minimise the debt after the sale, and that is our obligation to our shareholder as well. However, we are cognisant of tenants and the difficulties it can raise. Our managing agent will look at the lease and seek to ensure that we meet and honour the guidelines of the RTB.

Once a property that Permanent TSB possesses becomes vacant, how long will it remain vacant until somebody is living in it?

Mr. Shane O'Sullivan

It depends on different scenarios. If we appointed a rent receiver, for example, we would allow that to continue indefinitely so once tenants are paying rent we would be happy for them to stay in place for as long as it suits everyone. If we have a repossession order for a property, the nature of the system here means that tenants will typically get 18 months from the period of notice as the repossession order and execution order move through the system.

My question is how long it is vacant rather than how long the tenant stays in it.

Mr. Shane O'Sullivan

Sorry. When we take the property back, we look to sell it as quickly as possible. It depends on the condition of the property and if it needs to be done up. We would typically sell that property approximately six months after taking possession.

Mr. Jeremy Masding

It is important to say, for the avoidance of doubt, that we are a bank and not a property company. Our desire is to release the capital to fund the growth of the economy by selling these properties as quickly as we can.

I thank the witnesses for their presentation. I will finish on the matter of tracker mortgages. How much of the €145 million that was set aside has been paid out in monetary terms?

Mr. Jeremy Masding

I will ask Mr. Mitchell to give some of the data to the Senator.

Mr. Ger Mitchell

Will the Senator repeat the question?

Some €145 million was set aside to cover tracker mortgages, which included the increase of €6 million in 2016. How much of that has been paid to customers?

Mr. Ger Mitchell

I do not have the breakdown with me. I can get that for the Senator. We have a provision of €145 million which we expect will fully cover all costs involved in both compensating and redressing customers and also the costs of running the review over the past two years.

So Mr. Mitchell does not expect that the additional €6 million added in 2016 will have to be increased again, regardless of the review that he is currently doing?

Mr. Ger Mitchell

I cannot forecast that accurately at this point but, based on our half year results, we are committing that the €145 million we have provided for will be sufficient to cover the costs of the review and of taking care of customers in so far as we can.

I would appreciate if Mr. Mitchell would let us know what the monetary figure is with regard to what has been paid out.

Mr. Jeremy Masding

We gave the last publicly quoted number on page 27 of our submission, which was €61 million of the €145 million. That was on 31 December 2016. As Mr. Mitchell explained to Deputy Doherty, each case is different and it is very complicated, but we will come back to the Senator with information in the next 24 hours on how the €61 million has changed.

I would expect it to be much higher because we are ten months past that now. Has the bank been contacted at all by the gardaí with regard to the tracker mortgage debacle? I know that the Central Bank once indicated that it was going to examine that. Has Permanent TSB been contacted?

Mr. Jeremy Masding

No.

What were Permanent TSB's profits for last year?

Mr. Stephen Groarke

Overall, we actually made a loss of €266 million and that was after allowing for the sale of the portfolio that Deputy Murphy asked about. On a pre-exceptional basis, we made an operating profit before exceptional items of €188 million in 2016.

When does Permanent TSB expect to pay corporation tax or has it an arrangement as we saw with a bank the other day?

Mr. Jeremy Masding

It is not an arrangement per se. I think the Senator is referring to the infamous deferred tax asset. That is an accounting principle that we are obliged to comply with. Mr. Groarke can comment on the size of that asset.

Mr. Stephen Groarke

The deferred tax asset is €353 million.

When does Permanent TSB expect to pay corporation tax?

Mr. Stephen Groarke

To outline the principles behind that, it is not unique to banking. It has been in place in Irish tax law for quite some time, even before the crisis, that any business that makes a loss gets to carry that loss forward.

I understand all of that but my question is when the witnesses expect that Permanent TSB will pay corporation tax.

Mr. Stephen Groarke

We estimate in our accounts that that deferred tax asset will cover profits for the next 21 years.

Mr. Stephen Groarke

I should add that that is not the only area where we have an obligation to the State. We also have a separate obligation under the banking levy where we pay €27 million a year regardless of whether we make a profit or not.

I understand that but 21 years of a tax holiday is quite good. I know many citizens in this country would like to have the same relationship as Permanent TSB.

I want to move on to the Permanent TSB's fees structure because I know our time is limited. When Deputy Doherty wrote to Permanent TSB earlier, its response was very much an admission that this was about pushing customers from one type of account to another. Surely that strikes a contradiction in banks coming before us and telling us that they are modernising and improving their products, yet it always seems that customers are the last to know. Some of the fees increased by 460% according to the reports and I want to check with the witnesses if that is an accurate figure. One went from €3.18 to €18.

Mr. Jeremy Masding

I think the Senator is talking about a certain cohort of current accounts. As I explained to the committee in the past, the transformation of Permanent TSB is complex and multidimensional.

In that particular instance we looked at that cohort of current accounts, some of which are ten to 15 years old and have had no increase in the fee structures for a long time. Secondly, we looked at the relative cost of the current account when compared with our peers. While I accept that, on the face of it, the percentage that Senator Conway-Walsh mentioned is substantial, it is only so to bring it up to the market norm. What we are trying to do is to build a profitable business which we can then invest in the continued growth of the Irish economy. We will only do that if we are competitive. I have no intention of putting it out there, versus our competitors. It is a market benchmark number.

Is Mr. Masding happy with the increase cited? Does he think it reasonable?

Mr. Jeremy Masding

Yes, I do, after ten years. It is also reasonable in terms of its position relative to our competitors.

Has Permanent TSB lost many customers because of it?

Mr. Jeremy Masding

The increase has only gone in recently and the letters have only just been issued. If the Senator is asking me if I would expect to lose some customers then I would say that every customer has a choice, particularly with regard to current accounts where the market for switching has started to come alive again. This development has in fact been led by Permanent TSB with the introduction of our Explore account. Customers have the choice to look around of course, which is a good thing. Competition is a good thing. I am sure we will lose some customers but what I am trying to do at the end of the day is to build a sustainable business for Ireland.

When it comes to welcoming competition into the market, what is worrying us is the fact that this increase is to bring Permanent TSB in line with other banks. That takes the competitive element out of it, which is what causes me the most concern.

Mr. Jeremy Masding

As one would expect, I take a different perspective on that. Looking at the funding side of the balance sheet and the current accounts, we have introduced to the market what we call the Explorer current account, an account which rewards customers for banking with us. That was new to market and that is what we are here for. On the assets side of the balance sheet, in recent weeks we introduced a similar product which we call the two-plus-two mortgage, where we give 2% cash back up front plus a further 2% a month. This, again, is distinctive in the market. We will all have different views of course, but my perspective is that we are trying to develop interesting and different propositions for our customers. That is what the committee and the Irish population at large requires us to do and what we are trying to do.

I will leave it at that, a Chathaoirligh, as I know others want to ask questions and our time is limited.

I would like to return to the tracker mortgage issue. Under the Central Bank review, as I understand it, where customers made complaints to the Financial Services Ombudsman and where those complaints were actually upheld in Permanent TSB's favour, the complaints were also to become part of this review. Even where the FSO found against the customer, that customer was still to be contacted. I listened carefully to Mr. Mitchell's description of trying and failing to contact certain customers, but is Permanent TSB satisfied that it has contacted all customers? I ask that question because I have a specific case that could be representative of a sample of cases where the individual has not been contacted at all. This individual is still at the same address as before and continues to be a Permanent TSB customer. I worry that perhaps not everybody has been included in this investigation.

Mr. Ger Mitchell

I can assure Deputy Sherlock that every single customer to ever have a tracker mortgage or the right to be offered a tracker mortgage with Permanent TSB, from our introduction of trackers on 1 January 2004 through to 31 December 2015, has had their mortgage assessed. That applies whether that mortgage is live today; whether it has been redeemed; whether it has been sold; or indeed whether it has been the subject of an inquiry by the Financial Services Ombudsman at some point. Customers who might have been detrimentally affected or potentially detrimentally affected by a failing on our behalf would have been identified during or after that assessment and all those customers have been or are in the process of being contacted.

That is interesting. What does Mr. Mitchell mean when he says that they "are in the process of being contacted"? That suggests to me that not everybody has been contacted.

Mr. Ger Mitchell

As I said to the Deputy-----

Forgive me, I do not want to be too pedantic but I just want to really understand this.

Mr. Ger Mitchell

That is fine. That is no problem at all. Stage one of the mortgage redress programme was the 1,372 customers affected. Approximately 98% of those customers have been contacted. On the other 14 customers, we have made six different attempts to try to contact them. In two cases, we are waiting for them to sign forms and send them back to us. That is just the reality of it.

The very specific case that I have was the subject of an FSO complaint. The individual in question should prima facie have been contacted but has not been. Could I correspond with the bank with regard to this specific case? I am worried that it could perhaps represent a sample of cases. That is my central point here.

Mr. Jeremy Masding

I am confident that it does not represent a trend. I would just like to state that this is a very complex piece of work because there are many different varieties of mortgages. As we go through the thinking stage we then have to carry out the communication. It is only in recent weeks that we have finished working on the final set of cohorts so some of those customers have not yet been contacted. Let us put that on the record. In answer to the Deputy's question, they have not yet been contacted. If the Deputy could inform myself or Mr. Mitchell of the details of that case I can assure him that we will get onto it straight away and match it against our files.

Is Mr. Masding satisfied that Permanent TSB is fulfilling its legal obligations under data protection law? Let me be more specific. I assume the witnesses are aware that banks are legally obliged to retain all communications for six years after the ending of a product. A 30-year mortgage, for example, would result in a bank retaining records for 36 years. Is Mr. Masding satisfied that Permanent TSB is retaining all of those records with regard to correspondence with the customer, even where the customer makes a complaint? This might include phone records, emails or any kind of electronic communications with those customers.

Mr. Jeremy Masding

To the best of our knowledge, I think.

Mr. Stephen Groarke

To the best of our ability. I am aware of one case where a complaint was made with the FSO and where Permanent TSB had lapsed in our responsibility to retain correspondence. This is a focus area for us, along with a lot of other legislation and regulation. A lapse like that is not accepted in the bank and we constantly strive to make sure that we have the right controlled environment in place to live up to those legal responsibilities.

The witnesses acknowledge, then, that there was a lapse. How systemic was that lapse and how many customers were affected by it? I ask the witnesses to be specific.

Mr. Stephen Groarke

That particular case was, to my knowledge, unique. It was not systemic across our systems. That said, we will certainly look at any other cases that Deputy Sherlock has an interest in. It is, as I said, an area we are very committed to when it comes to ensuring we live up to legal responsibilities.

Mr. Jeremy Masding

Just to round it off, as the Deputy would expect us to say, one case is unacceptable.

Could Mr. Masding repeat that?

Mr. Jeremy Masding

One is unacceptable. There should be zero tolerance when it comes to matters of regulatory compliance.

Absolutely. Again, one suspects that this is symptomatic. It goes back to the tracker mortgage issue where complaints where made to the FSO, where somebody sought records and was unable to obtain them from Permanent TSB. This weakened that individual's case and, indeed, rights.

The bank was clearly in breach of the legislation in not retaining fully the records as per its obligations. The witnesses have acknowledged that in one case, but I would suggest, as with the one case I am referring to, there is probably more than one. The bank has acknowledged it will gladly accept correspondence from me relating to that, if I understand the witnesses correctly. I put it to the witnesses that the data protection law is the one protection the customer has when it hits the fan. If institutions such as Permanent TSB do not protect customers' rights in that respect, it is a serious failing.

Mr. Stephen Groarke

I agree with the Deputy. There are several protections such as the code of conduct on mortgage arrears, the consumer protection code and data protection. There is quite a lot of regulation and legislation in this area, and rightly so. We take it very seriously and, as Mr. Masding said, do not accept even one breach of that responsibility.

How often does the bank correspond with or meet the regulatory authorities regarding its obligations under the Data Protection Act?

Mr. Stephen Groarke

There are different regulatory authorities. In this case, it is the Office of the Data Protection Commissioner. We would have regular contact. Typically, meetings are not as regular as they would be on the prudential supervision side but the teams with responsibility for this within the bank have regular contact over the course of a year.

If the person to whom I am referring requests their records tomorrow, can they be satisfied that those records are retained?

Mr. Stephen Groarke

I would like to say "Yes". I think the Deputy is thinking of a very specific case where it sounds like there is an issue. I would like to-----

Pretend I am an ordinary customer. Can every customer be satisfied that their records-----

Mr. Stephen Groarke

Absolutely. We have a process in place where if somebody requests their data, as is required under the legislation, we will provide that data.

I welcome our guests. I saw most of the earlier questioning on the monitors but if I repeat any, let me know. In respect of interest rates, Mr. Masding said in the questionnaire that one in three of those eligible have applied for the managed variable rate. Is that the case?

Mr. Jeremy Masding

Yes, that is correct, with continuous communication. The Deputy would expect me to say that at every public forum. I reiterate that it is a very easy process. It was all around treating existing customers and new customers the same and I would encourage all customers to avail of what I think is a fair and reasonable approach by the bank.

Mr. Masding said that 51,000 customers are still on the standard variable rate, SVR. Is that on a rate of 4.5%?

Mr. Jeremy Masding

That is correct.

Just to clarify, for the existing-----

Mr. Jeremy Masding

My team might correct me but to the best of my knowledge, our systems also classify the warehouse element of our splits which do not charge interest for private dwelling homes, PDHs, in the SVR bucket. There are about 5,000 to 6,000 of those. In terms of this conversation, I think 51,000 should really be seen as about 45,000 active SVRs.

So broadly speaking, the number is in the mid-forties on an SVR of 4.5%. In respect of the bank's managed variable rates, greater than 90% for existing customers to greater than 90% loan-to-value, LTV, is a rate of 4.3%. Is that also available to those in negative equity? Is it between 90% and 100% or is it in excess of 100% where one still gets a managed variable rate of 4.3%?

Mr. Jeremy Masding

Yes.

So 45,000 customers or so, irrespective of their LTV, who are currently paying 4.3% are entitled to a reduction in their interest rate if they go about it?

Mr. Jeremy Masding

That is correct.

That is a lot of people. It might be a reduction of only 0.2% out of 1% but depending on the principal balance of the mortgage, that could make a difference. Why does Mr. Masding think the uptake in general has been so poor? I think Mr. Masding said in the questionnaire that the bank wrote to people back in 2015.

Mr. Jeremy Masding

Yes, in 2015 and 2016. We are now considering what we have learned from those two communications to make it more compelling. I would not want to put myself in the shoes of a customer.

What is the process for a customer involved? Must they select a valuer from a panel provided by the bank? How does it work in practice?

Mr. Ger Mitchell

I am happy to take that question. The range of reductions, as the Deputy rightly said, is from 0.2% down as far as 0.8% of a reduction depending on the value of the property relative to the outstanding loan. In terms of the first year of it, we identified our panel of valuers and put a voucher in every single letter. We sent it to each customer with a free valuation and they remain valid for those customers who have them. Over 70,000 customers got a switch pack-----

Mr. Ger Mitchell

In 2015. Those who did not take up the offer got a second switch pack in 2016. Each switch pack contained a free valuation from any one of 500 valuers across the country. All of their details were pre-formatted on to the document so they just had to get the valuation, which was free, sign the application form and return it in a stamped addressed envelope and it was processed inside 48 hours.

The headline there is that one in three who were entitled to some reduction went ahead with it and received it but that two thirds of the banks' customers on a variable rate have not gone about it.

Mr. Ger Mitchell

That is right.

And all of them are entitled to some reduction.

Mr. Ger Mitchell

All of them are entitled to some reduction and we want all of those customers to avail of that reduction because the heart of this is trying to bring about fairness with regard to the treatment of new and existing customers and bringing them on to a central pricing point.

It is quite extraordinary, is it not?

Mr. Ger Mitchell

It is.

It is hard to understand. In terms of the bank's rates for new business - the 1% discounted rates - people get that for one year. What do they then revert to? Do they revert to the rates for existing business?

Mr. Jeremy Masding

They revert to the prevailing managed variable rate, MVR, at the time of the initial draw down.

So new customers can get 2% cash back and a discounted MVR for one year. The witnesses referenced treating existing and new customers the same but the bank is not doing so in terms of its overall offering. An existing customer with Permanent TSB-----

Mr. Jeremy Masding

All businesses have an obligation to try to source new customers. Where we must be careful is if those propositions for new customers are there for such a long time or are so different that they are material versus the stock of customers. What we are trying to do here is, as one would expect, to compete but the discounted period is, as Mr. Mitchell said, for a year-----

The bank's existing customers are paying for it. They are paying for the 2% cash back and the discounted MVR for new customers. The banks must make up the money somewhere.

Mr. Jeremy Masding

We have to compete.

Does Mr. Masding think it is fair?

Mr. Jeremy Masding

Compared to what I have seen in other countries and what I see in the Irish market, I think we are competing in a perfectly acceptable fashion.

What impact would it have on the bank if legislation prohibited discrimination between new and existing customers and prohibited these cash-back offers?

Mr. Jeremy Masding

There are probably two questions there. I would not want to comment on legislation on rates because, obviously, I would not understand what that legislation might look like. As the Deputy would expect to me to say, I believe in a free market and competition and I would hope there is no need for an intervention in pricing of a market. In terms of the cash-back offer, I can assure the Deputy that before we put any proposition on the shelf, we carry out deep research, which includes customer focus groups. Certainly the dialogues we have had with customers, for example, before we put the new mortgage products on offer, show that 2% was of value to customers.

What information is the bank obliged to provide to a customer who is looking at their options across different banks? Permanent TSB is offering cash back of 2% while another bank might have a lower interest rate but no cash back. What is the bank obliged to tell the customer by way of information in terms of how much they will be paying over the full duration of that mortgage so they can weigh up what is in their best interests and whether the discount is worth it?

Mr. Jeremy Masding

In many ways, we have regulatory obligations to ensure there is transparency.

That is what I am asking.

Mr. Stephen Groarke

There are perhaps two parts to that. One is that the features of the mortgage need to be very clearly explained, and there are both legislative and regulatory obligations in this regard. Then, specifically regarding comparability, the 2% cashback and 2% loyalty bonus over the life of the mortgage must be included in the APR. Therefore, if a customer wants to compare mortgage products on an all-in basis, he or she can use the APR we quote versus the APR that other banks quote. The intention of that legislation is to create that comparability.

Regarding the issue of fixed rates, again, Permanent TSB makes a distinction between the rates it charges new customers and the rates it charges existing customers. Is it correct that a new customer can lock in for a period of up to five years at the published rates? Is it therefore correct that a new customer with a mortgage fixed for five years with an LTV of less than 60% can avail of a rate of 3.4%? Is there no LTV banding of fixed rates for an existing customer? There is a two-year, three-year and five-year fixed rate offering, and I know for a long time Permanent TSB did not offer any fixed rates to existing customers. That changed, which I welcome.

Mr. Jeremy Masding

The last time we had an interaction with the committee, we promised that we were then in a position, because of the strength of the bank, to get some matched funding. That is why fixed rates for existing customers-----

Yes, but I ask Mr. Masding to clarify for me that, as regards the treatment of an existing customer, LTV is irrelevant and that, irrespective of how low one's loan-to-value ratio is, the lowest fixed rate he or she can get with PTSB is 4.2%. Is that the case?

Mr. Stephen Groarke

That is correct.

However, a new customer, if he or she has a low LTV ratio of below 60%, can lock in at a five-year rate of 3.4%, which is 0.8% less.

Mr. Stephen Groarke

That is correct.

Again, that is a very stark illustration of the different treatment of new and existing customers. We are not talking about one year here. We are talking about a five-year period. A new customer can potentially get a rate up to 0.8% lower than that of an existing PTSB customer. That is completely unfair.

Mr. Jeremy Masding

By their very nature, fixed rates are priced at a point in time depending on the cost of funds that we can get to match them. Fixed rates, by definition, therefore, will fluctuate in price. I understand the Deputy's point. All I can tell him is that we run the economics to the best of our ability at a given point in time and try to ensure the products we put on the shelf are competitive.

I suggest PTSB consider the matter further for the sake of goodwill for the bank and retention of customers. To be frank with Mr. Masding, I would advise those of the bank's existing customers who are in a position to switch to do so. His job is to try to keep them, but PTSB's rates are not competitive for its existing customers and the bank is benefiting from the inertia of a certain customer cohort, unfortunately. It is our job to try to encourage people to avail of switching where they can because they can get very big reductions.

Mr. Jeremy Masding

I hear the Deputy's point.

Is there complete flexibility in that a customer can move more than once if necessary if his or her LTV ratio continues to fall, or can he or she only move once to a lower managed variable rate?

Mr. Ger Mitchell

According to the current construct of the rates, he or she can move once.

Mr. Ger Mitchell

Once only as it stands but, again, it is our intention over time to look at that proposition to see how we can-----

It is relatively new, so the inability to move a number of times would not have affected a huge number of customers. The bigger issue is those who have not moved at all, but-----

Mr. Ger Mitchell

It is something we are mindful of and will look at as we evolve the proposition in the years ahead.

What is PTSB's market share of new principal dwelling house mortgages?

Mr. Jeremy Masding

It is probably between 11.5% and 12.5%, depending on each month. As I said, that is probably now trending towards a point at which I can validly claim we are providing real competition.

Has that remained very stable or-----

Mr. Jeremy Masding

No. It was 1.5% to 2% back then. As we have moved out of the fixing stage and we have begun to compete commercially, we are trending in the right direction.

Does PTSB still have the current account offer of no fees on new current accounts or is that gone?

Mr. Jeremy Masding

We have the Explore current account now, which is the reward current account.

I am not sure whether this has already been asked, but what is the overall cost to the bank of the tracker redress programme?

Mr. Jeremy Masding

That question was asked.

What is the figure?

Mr. Jeremy Masding

Out of courtesy, I will say what I said earlier. The provision is €145 million. The last public pronouncement was €61 million at the year-end accounts. The figure is moving around because every day we are redressing and compensating different customers. I promised the Deputy's colleague, Senator Conway-Walsh, a note on that.

Again, the witnesses can tell me if this was asked. Has the tracker issue of customers being put on ECB plus 3.25% been examined, has it been addressed as part of the tracker programme, and are there many customers in that category? A number of them who believe they should be on what we would all regard as a regular tracker rate, with a margin of 3.25% for some of them, have been in touch.

Mr. Ger Mitchell

Yes. Every tracker contract has been examined as part of the Central Bank review. I think the last time I was here I explained that, broadly speaking, about two thirds of those on our books are on a price promise tracker whereby there is a fixed margin at the point of entry in terms of the contract, and about a third of those on the book are on a non-price promise tracker. The latter is otherwise known as a prevailing or appropriate rate. That rate has changed over the years. There were approximately six changes to it from 2006 through to 2008. Depending on the point of maturity at which a customer would come off a fixed rate or discounted rate, as part of our review we have determined that the vast majority, if not all, of those customers are on the correct rate. Those who have not been on the correct rate are captured in the 579 we have in the pack and those customers will be remediated accordingly. All this was part of our submission to the Central Bank on 30 June, and we are now waiting on the Central Bank to conduct its independent assurance investigation of that work.

Will Mr. Mitchell clarify in simple terms how it could be that there would be a margin of ECB plus 3.25%? How could the margin be of that order?

Mr. Ger Mitchell

The margin was determined at that time, so that margin of 3.25% would have come into play in around late 2008 or early 2009, and it has remained at that point since then.

Is Mr. Mitchell saying that was the margin applied to all tracker accounts at that time, even in the case of those who were actually on trackers and not just those coming off fixed rates? Were PTSB's tracker customers around that time paying ECB plus 3.25%?

Mr. Ger Mitchell

Many customers who would have taken out a new mortgage with us would have taken out a fixed rate product that had the option of moving to a tracker at a point in time, two or three years hence. At the point of entry, when a customer is fixing for two or three years, one cannot give him or her a guaranteed margin upfront and say that in three years, his or her rate will be X, Y or Z. What it states in the contract is that he or she will get a tracker rate appropriate to the loan at that time. As customers' mortgages matured over the cycle, there were different appropriate rates in line with the market.

Is Mr. Mitchell saying that the bank's margin above the ECB rate varied over a number of years and went up to 3.25%?

Mr. Ger Mitchell

For the product in question, that margin varied over the course of about two to two and a half years.

Were actual tracker customers being charged ECB plus 3.25%?

Mr. Ger Mitchell

Yes, and there are tracker customers today with a margin of 3.25%.

Is Mr. Mitchell's core point that since that was the margin that applied when this affected cohort took out their mortgages, when they came off the fixed rate, he believes the correct thing to do was to apply that margin to them when they came off the fixed rate?

Mr. Ger Mitchell

That was the margin to which they were entitled, as per their contract at that time, and that is the margin they are on today.

Has the Central Bank adjudicated on that?

Mr. Ger Mitchell

We have submitted our report to the Central Bank, we are waiting for the bank to adjudicate on all the points regarding the tracker review and we expect it to have its independent oversight team visit us in October to conduct that review.

I also welcome the delegation. Does Mr. Masding attribute the new mortgage market business that he says has grown from 1.5% to 12.5%, or a big portion of it, to the 2% cashback offer?

Mr. Jeremy Masding

No. There are many different factors. One is the quality of the proposition, as has been mentioned. The second reason is that my team, by definition, having come out of the fundamental restructuring of the bank, now have more time to focus on competing in the market.

Of course, the economic growth of Ireland and the associated growth of the mortgage market also help. It helps if one is competing with a bigger pie. Those are the three reasons. I would not put it down to one specific reason.

With regard to the 2% cash back on the average tracker mortgage, how many years does it take to get the 2% back?

Mr. Jeremy Masding

We do not write tracker mortgages anymore in new mortgages.

What about on the lowest rated mortgage?

Mr. Jeremy Masding

I do not understand the question. We only do variable rate mortgages now with cash back.

How long does it take to get the 2% cash back on the lowest variable rate mortgage? Does it take a year or two years?

Mr. Jeremy Masding

From a customer's perspective?

From the bank's perspective.

Mr. Stephen Groarke

The way we think about it is that the customer gets the 2% of principal at inception and until 2027 he or she will get 2% of their repayments back. We then have to make certain assumptions in the background as to how long the customer will be with us. Clearly, the mortgage contract can be 20 to 25 years so we can make an assumption that it can be allocated over that entire period. In our internal models we allow for the fact that customers might well wish to switch to other products or, indeed, to other banks so we do not spread it out over that full period. However, the assumptions will be different for different banks and we do not disclose our expected duration of our mortgage book because it is a competitive number.

Obviously the 2% cash back is spread over a period of time on the mortgage.

Mr. Stephen Groarke

That is the way we would look at it. From the customers' perspective, they get it up front.

The witness said that the APR could be a little higher in cases where there is 2% cash back.

Mr. Stephen Groarke

The APR would come down slightly due to the fact that we are giving the customer something back. The benefit they get would bring the APR down slightly relative to the APR that would apply if they did not get the cash back. We allow for it within the calculation.

The start of the problem we had in the past was 120% mortgages, advances by credit card businesses and the like. With regard to developers, the bank has said it does not consider development loans now.

Mr. Jeremy Masding

Our restructuring plan is very clear about the boundaries of the business we are allowed to do. We are in the personal banking and SME space. We are not allowed to do propertied loans.

Is that by the Central Bank?

Mr. Jeremy Masding

The European Commission in Brussels.

Would the bank be able to give those loans if the European Commission relaxed that rule?

Mr. Jeremy Masding

Theoretically, yes. I wish to return to the Senator's earlier remark about the 125% mortgage. The underlying principle there is the ability of the bank to understand the risk of lending money. I like to think that since 2012 we have gone back to the basic principles of lending to the person, not the property, and being very clear on the affordability aspect. In terms of the Senator's question on development loans, theoretically we could do it but a banking CEO must be absolutely sure they have the capability within the organisation to undertake that type of lending. As of today, it is not something I would consider.

Even if a developer is developing four or five houses, the bank is still prohibited from lending.

Mr. Jeremy Masding

No, not at this time.

Even if they had been customers in the past they must move on to other lending institutions. Is that the case?

Mr. Jeremy Masding

Correct.

They could go to the credit union or Bank of Ireland.

Mr. Jeremy Masding

Yes, that is correct.

In 2015, the average loan to first-time buyers was €150,000. It has increased significantly to €184,000 in 2017. What is the cause of that? Is it that the price of houses is going up or that the bank is getting more flaithiúlach with cash or that it can give out more money? Why the change from €150,000 to €184,000 in two years?

Mr. Jeremy Masding

The biggest challenge for us as a team in macro Ireland is the lack of housing supply, and the lack of housing supply associated with what I call good demand. There are many creditworthy borrowers to whom we would like to lend money. Housing supply is the biggest issue for us. As a result of that, the country is experiencing house price inflation. By definition, therefore, a home sold in 2015 is more expensive today. That is why the average balance has increased. We have not changed our credit standards. Of course, at the edge the Central Bank of Ireland, CBI, slightly changed its criteria and that is an associated factor. The answer to the question is first, housing supply, and second, the CBI. The third point I continue to reiterate is that our group is committed to lending based on affordability, not on belief around an asset.

Will the bank lend to an individual who wishes to build his own house?

Mr. Jeremy Masding

Yes, we do self-builds.

However, the bank cannot do it if he wishes to build two houses.

Mr. Jeremy Masding

That is correct.

With regard to small businesses, I have received many complaints about overdraft interest. An overdraft can be very expensive for small businesses.

Mr. Jeremy Masding

We keep our rates under constant review. I believe our rates are competitive and I will continue to keep all of our rates at the top of my mind. That is all I can say.

Does the bank refuse many small businesses so they have to go elsewhere to get funding?

Mr. Jeremy Masding

We take each case on its merits. Of course we have declines. We have also joined the Credit Review Office process. We are happy that customers can appeal through that. To the best of my knowledge, there has been one appeal and the Credit Review Office agreed with the bank's analysis. I might be wrong on that and I will refer back to the committee, but we are part of the Credit Review Office process.

There has been only one appeal to that office.

Mr. Jeremy Masding

Yes, to the best of my knowledge.

Mr. Stephen Groarke

That is correct. In that case the Credit Review Office agreed with our view on the credit application.

Mr. Masding, I have a question about the data you have on each customer relating to their accounts. Where is the information gap or where do you not have the letters and correspondence? Is there an issue from 2008 onwards with a number of customers or with only one customer?

Mr. Stephen Groarke

No. My understanding is that it relates to one isolated case. In terms of a wider information gap, we have not seen any wider information gaps other than that case. In terms of it being an obstacle to the review that Ger Mitchell has described, it has not been an obstacle outside of that instance.

It has been an obstacle to that customer.

Mr. Stephen Groarke

That is correct.

In the application to the bank for information, the bank was unable to provide three vital documents. How do you know there is not more there? The customers would not know that the bank did not have the documents confirming that they were on a tracker, so therefore they would not form part of the review. For how many years is there a gap in the bank's data from 2008?

Mr. Stephen Groarke

I must confess that it sounds as if the Chairman is more familiar with this case than I am. I am not au fait with-----

Mr. Groarke should be, given the amount of correspondence the bank has received. However, I am not raising an individual case. It arises from the question Deputy Sherlock asked. The bank has an information gap somewhere and that information gap affects its customers. At present, it appears to be one, according to Deputy Sherlock. If others applied for their data from the bank, would they face the same issue of the bank not having the letters? The numbers, therefore, could be greater.

Mr. Stephen Groarke

We have not seen it as being an issue any wider than that particular instance in the review.

Has PTSB checked all of its files?

Mr. Stephen Groarke

To put a sense of scale on this, in terms of the number of customers that had to be looked at, there were about 400,000 accounts at PTSB over this entire period, a number of which have closed since. We have gone through every single one of those accounts in this review to try to bring it down to the number of those who had an entitlement to a tracker but did not have one. A huge volume of work has been done in the bank to try to get to that position. It is not just a case of going through one or two funds, but of going through that sort of large volume to make sure we have tried to deal with this as comprehensively as we can.

PTSB still does not know whether there is anybody other than that one case out there.

Mr. Stephen Groarke

I should undertake, in line with the discussion with Deputy Sherlock, to come back to the committee on that particular case and to describe the circumstances around it.

I am not just addressing that case. There may be others for whom the bank does not have the correspondence to say that they were on a tracker. If that correspondence is missing from the file in the case that Deputy Sherlock raised, there could be other files from which that same piece of correspondence is missing and other people whose claim to a tracker is recorded in correspondence which the bank does not have.

Mr. Jeremy Masding

At this moment, we have no reason to believe that the point the Chairman is making is a systemic point. It is a sample of one. If there are other customers who believe that there is information that we have not taken into account then we will be the first to take that information on board. If we found we had made the wrong decision, we would reverse it instantly. I do not think there is much more we can say.

Okay. In the case raised by Deputy Sherlock, was the situation reversed instantly?

Mr. Jeremy Masding

I do not know. I will come back to the Chairman.

Deputy Sherlock is right about it anyway, I understand. In terms of dealing with correspondence from customers, how quickly does the bank respond to customers who write in and make a complaint because they feel they should be on a tracker? How long does that take typically?

Mr. Ger Mitchell

It all depends on the nature of the complaint. Typically speaking, we observe the guidelines in that we contact and respond to customers inside five working days. We commit to resolving any issues we can with the customer, depending on their complexity, inside 21 working days, and then we will commit to the closing out of that issue over a period of time. Very often customers take these actions themselves. Sometimes they are represented by others and sometimes they engage a financial adviser who may submit on their behalf.

Is there any particular company or individual that represents a number of cases to PTSB?

Mr. Ger Mitchell

Yes, there are probably two main groups. There is a small group of customers represented by one or two financial advisers and another group represented very often by a solicitor who might have a cohort of 20 or 30 customers.

What is your engagement with he likes of Mr. Kissane, who gave us an insight on behalf of customers into how the tracker issue has been dealt with by various banks? Have you reached out to them to understand the customer issues and the effect that the tracker issue has had on them and their families?

Mr. Ger Mitchell

I have met Mr. Kissane and other advisers. I have met customers and we continue to engage with customers who are affected by this failure.

It took the bank nine months to reply to one particular case, although it may be a once-off. The customers have written to the committee. They wrote to PTSB in July 2016 and did not get any substantial reply until April 2017. That was only after they had contacted the Central Bank and the ombudsman. It is a pity that a customer who has been affected negatively by the action of a bank should have to wait that long.

Mr. Masding set a lot of store by his passion about the bank and how it can make a contribution to the economy and so on. I have heard very little from the witnesses about addressing outstanding matters for all customers with the same level of passion. Maybe it is just because the people who are affected negatively write to us here but I would imagine that any bank wanting to play its full role in the economy and indeed in society should ensure every customer complaint down to the last one should be dealt with. I would consider that taking nine months to respond does not match the story the witnesses are telling today.

Mr. Ger Mitchell

Chairman, I agree with you. What I would like to understand more is the detail of that particular case. Any customers who----

This is a different case.

Mr. Ger Mitchell

I know but any customer who would have contacted us with regard to a complaint on their tracker - very often all those complaints would have been acknowledged although we were very often unable to provide them with discrete detail with regard to their case because the review was under way. In terms of the substantial nature of further information, we would have been unable to furnish that until the review was complete, and we are in the process of doing that now.

Going back to the Central Bank update on the tracker issue, a number of examples are outlined in pages 18 and 19. In example 2 in that report there is reference to transparency issues resulting in loss of tracker product. They set out what they believe are the ground rules for that cohort of customers. Is Mr. Mitchell satisfied that PTSB, in line with these examples, has dealt with its customers in a way that would be expected by the Central Bank?

Mr. Ger Mitchell

We are satisfied and we have submitted our report to that end in terms of the transparency, the influencing factors and the way in which communication was structured and customers were written to. We have assessed probably close to 50,000 different pieces of customer communication from over a 14-year period.

What sort of guarantee would Mr. Mitchell give to people who are at odds with the bank in terms of dealing with and examining their cases and so on?

Mr. Ger Mitchell

I can assure the committee that, in terms of looking to do the right thing by customers, the detail and interrogation we provided to this review, and the resources the bank has given towards making sure we right the wrong, help customers rebuild their lives and deal with failings on our part, we believe we have done everything possible in this regard.

How was that handled in terms of PTSB's desire to understand the customer's case and the assistance it can give to the customer? Is the bank proactively engaged with customers who are at odds with it about the position of their trackers? Does the bank give them the benefit of the doubt? Is there flexibility within its dealings with them, relative to their circumstances or their case?

Mr. Ger Mitchell

Yes, indeed. We have a dedicated customer team that is focused exclusively on customers who are potentially affected by the tracker review.

How does it work? Is it all internal in the bank, this appeals system?

Mr. Ger Mitchell

No, it is not.

I am just asking. I do not know the answer.

Mr. Ger Mitchell

No problem. We have a normal complaints or customer service department and, within that, we have set up a unit to deal specifically with customers affected by the tracker issue. Where customers have been affected, we have established two independent appeals panels managed by an independent secretariat, BDO. Those people are not in our building. They are all independent. Customers make appeals directly through those panels. We do not involve or seek to influence the decisions of those panels.

If the Central Bank or PTSB's internal correspondence with a customer should indicate that they were on a tracker mortgage at some stage, I presume they automatically go back on a tracker mortgage. They are entitled to it.

Mr. Ger Mitchell

Again, it all depends on the exact case, but if a customer had an entitlement to a tracker and is not on a tracker today, we will move to ensure the customer gets what he or she is entitled to have.

I am asking again about the correspondence we discussed earlier. If that correspondence existed showing that a customer should be back on a tracker and he or she was not back on a tracker, would PTSB take immediate steps to examine the matter, and if it were found to be the case, would the person go straight back on a tracker?

Mr. Ger Mitchell

Absolutely. We are talking about one piece of correspondence.

How much resistance does PTSB put up to these customers?

Mr. Ger Mitchell

We are looking to do the right thing by customers, to put them back and to correct this as soon as at all possible. There is not just one piece of correspondence per se on which hangs the question of whether a customer has an entitlement to a tracker.

There are at least ten different pieces of information, such as the offer letter, the ESIS document, the application the customer would have signed, other documents relating to the journey they travelled in coming through the application process originally and a variety of other letters assuring them of their rates at the time of drawdown, etc. One simple piece of correspondence would not inhibit the customer in any way from getting his or her rights.

It would depend on the strength of that correspondence and the rights in the tracker.

Mr. Ger Mitchell

It would, but the offer letter is the basis of the contract which is entered into for the mortgage. If that contract outlines an entitlement to a tracker, or is an offer letter with a tracker mortgage on it, it is the basis of the arrangement.

How quickly can the people who are at odds with the bank about these trackers get a meeting with the bank?

Mr. Ger Mitchell

Any customer who has an issue in this regard can get a meeting with any senior person in Permanent TSB within a week or ten days.

I will give Mr. Mitchell a file on one of those customers after this meeting.

Mr. Ger Mitchell

That is fine, no problem.

Mr. Jeremy Masding

It is important to remind the committee of the principles around which we built the redress in compensation. The scheme was agreed with the Central Bank of Ireland. We were really keen to ensure there was an independent route for the customers so every customer has the right to appeal. If customers wish to do so they can also go to the ombudsman or to court. Sometimes there is a misunderstanding and customers seem to believe that, once we have righted the harm and paid the redress and compensation, that is it but that is not true. There is a chance to appeal and go to the ombudsman or the courts.

We have had to look at many different cohorts during the process. It is not as simple as converting a fixed rate into a tracker and we have to go through each cohort. The team that does the work is challenged by our second line and our work is challenged by independent oversight from outside. All of it is overseen by the Central Bank so if we have given the committee the impression that we do this in an unprofessional way, I apologise. I hope it is not the case. There is a series of layers and we are trying to do the right thing

I understand that the bank would deal with these issues in a very professional way and that is what I would expect. There is no drum to beat about it.

Mr. Jeremy Masding

I would like to look at the case to which the Chairman referred.

Mr. Masding will get it and probably has it already. He keeps referring to one case but it is not just about this one case. I am giving him an example of some of the correspondence I have received. I understand the task of the bank in examining each and every case, which may all be different, but I want to ensure that people who go to the bank with a grievance about their tracker get a fair hearing and are listened to.

Mr. Jeremy Masding

I accept that.

I want the bank to reply to them in good time and I want the door to be open to them. In some cases, according to people who have written to me, there are issues around those headings and approaches. As Chairman of this committee and as a public representative, it is my duty to ensure that Mr. Masding fully understands that there is more to banking in Ireland than profitability.

Mr. Jeremy Masding

I understand that, Chair.

Good. I want to ask about the High Court ruling on the warehousing of part of a mortgage, including a split mortgage, and the witnesses have answered the question here. How stands the position for those customers to whom the bank wrote on the split mortgage offer?

Mr. Shane O'Sullivan

The Chairman is referring to a court decision in a case in another bank on the application of a split mortgage, specific to insolvency. The ruling was particular to that case. When Permanent TSB looked to put its options in front of customers in 2012 we saw the split mortgage as a way to help people with significant problems to overcome them over time. We have a large number of split mortgages in place - some 6,700 - and a market share of 46% in respect of all splits. Our bank saw this as a way of helping people from that date but I think the other issue is unrelated.

I ask the question because, in the reply to us, the bank stated it was reviewing the High Court ruling and the implication for the group's existing split mortgage. The bank states that the case confirmed that the split mortgage was a legitimate alternative when considering a solution. Has the bank written to those customers who were aware of the High Court case to clarify that its offer of the split mortgage stands? If so, has it received a response from that customer base, taking up the offer of a split mortgage?

Mr. Shane O'Sullivan

We have not written, or seen the need to write, to those customers. This case was in the context of insolvency and the judge opined that a split mortgage was a legitimate offer, particular to that case. The bank on which the judge opined felt the split mortgage was not appropriate in this case.

What has been the response to the bank's offer? Has there been a good response?

Mr. Jeremy Masding

We have put in place 6,700 splits since 2012. There is a three-year review of a split, as is the case with any long-term treatment, and we meet with customers every three years to refresh their financial statement. It is in the customer's and our interest to reduce the level of the warehoused loan and put it into the main mortgage, because the warehouse is due to the bank at the expiry of the split mortgage. It is important we work with customers to understand what the capital repayment plan is and the three-year review is important in this. We are having success in that we are having good conversations with customers in this area.

Deputy McGrath raised the amount of correspondence we have received, from many customers who are affected. One person said:

When my tracker restored in August 2015 I was one of the many people caught in this rate-not-specified bracket. The tracker rate applied by PTSB to my mortgage account is 3.25% plus the ECB, but according to the calculation by PTSB contained in my original mortgage contract my rate should be 0.75% plus ECB - a bit of a difference, I am sure you will agree. I am, like everyone else, much aggrieved by this situation and will not accept this rate as correct.

They go on to say they have engaged the-----

Mr. Jeremy Masding

I think we have already answered that question.

I have not finished asking the question so I cannot know whether the bank has answered it or not. I am drawing the letter to his attention. The customer is one of many unhappy customers in this category. Do they get pushed to go to the limits to get redress from the bank? Mr. Masding said they could go to the ombudsman or the courts but these are hard-pressed customers who maybe do not have the means to take on the might of the bank.

Again I am asking, is the bank's door open so this set of customers can have their concerns listened to? Is the bank more interested in profitability?

Mr. Ger Mitchell

Absolutely, our door is open. We are open to listening to absolutely all customers who have a tracker entitlement or a challenge with a tracker rate. It will not cost any customer anything to lodge an appeal to any one of the two independent appeal panels. I assure the Chairman of that.

I will take this case as an example and follow it up with Mr. Mitchell.

Mr. Jeremy Masding

I apologise for interrupting.

There is no need to apologise. If you listened to the question and gave me a chance, you would not have to apologise.

Mr. Jeremy Masding

Sorry.

I thank the Chairman for his indulgence. I want to confirm that the figure presented prior to this committee meeting is the same. The witnesses have suggested there are a further 579 tracker mortgages entitled to redress on top of the 1,372 cases. Mr. Masding informed the committee that 22 individuals had lost their homes as a result of the tracker mortgage scandal.

Mr. Jeremy Masding

The original one.

Will Mr. Masding answer the following questions on that? Is the figure still 22 or have others now lost their homes from the identification of a further 579 cases? Has the bank given back any of the houses or did it still hold the homes at the time of identifying that these people had lost their homes? How did the bank address the position whereby the bank was responsible for a number of customers losing their homes?

Mr. Jeremy Masding

At a principal level, unfortunately there have been some further loss of ownership cases. Mr. Mitchell will give the detail.

Mr. Ger Mitchell

Of the 579 cases, an additional number of customers will fall into the loss of ownership category. We are currently completing the causation element of that, which asks whether our failings directly resulted in them losing their home or property. We expect the number to be low but as I have said previously to this committee and others, one is one too many. With regard to the Deputy's second question on customers who have lost a property, irrespective of any appeal or assessment, we made an immediate payment upfront, as soon as we became aware of it, of €50,000 for any home owner and €25,000 for anybody who lost an investment property. All these customers went straight through to our independent review panel and these 22, all of whom have been compensated and remediated, in some cases have got back the property they once had. In other cases they have taken out a tracker mortgage at the rate they would have been once entitled to. In all cases, the customers have been repaid any overpayment, correction in the rate and compensation for suffering and loss.

I presume the tracker rate is possibly the 3.25% rate discussed and mentioned by Deputy Michael McGrath and the Chairman.

Mr. Ger Mitchell

The tracker rate would be the rate they would have been entitled to as per their contract. If those customers were entitled to a tracker rate of 75 basis points, they would get a tracker rate of 75 basis points. If they were in the cohort where there was not a price promise, they would be in any one of six different prevailing or appropriate rates over that three-year period from 2006 to 2009.

The witness mentioned the figure is low. Are we looking at between five and ten or above ten?

Mr. Ger Mitchell

We are looking at somewhere between five and ten. We have not completed the causation work on that. Once we have that done, we will submit it to the Central Bank. We hope to have it done over the course of the next week. We will meet the Central Bank advisers thereafter.

I do not know how we will address the matter as we all know nobody will be held accountable in any of the banks for this. It will be explained as a systems failure, as everything is that happens in the banks. People lose money and their house and people take their own lives arising from decisions taken by bankers and explained as a systems failure. It is what really infuriates me. The bank carried out an investigation and identified 1,372 customers. It was going to leave it at that until the Central Bank intervened and said a further investigation had to be carried out. After that, it identified another 579 customers and the witnesses have told us between five and ten of those lost their house or home. I cannot imagine me or my family being put into that position. Permanent TSB was going to close the book on this and the Central Bank only acted after a long period and when customers took the bank to the courts.

I agree with the outgoing senior figure in the Central Bank in that until there is personal accountability within the financial sector, this will continue to go on. It might be something else in two or five years but it will happen until individuals are held to account. I hope this Government or the courts take on board the recommendations of the Law Reform Commission published many years ago that would allow for class action suits. The Chairman spoke about people on prevailing rates of 3.25% or people who lost their homes who do not have the resources or means to take bankers and well-resourced corporations to court individually but they could take class actions against bankers. This is not acceptable.

How does the bank explain that it was closing the book on this matter? It investigated the matter but closed the book. Nonetheless, two years later we find another number of customers where the bank wrongly took their homes or saw results where their homes were lost.

Mr. Ger Mitchell

The original investigation was subject to an enforcement action by the Central Bank, as the Deputy rightly points out. That enforcement investigation was focused on a very narrow strand comprising customers who broke early from a fixed rate product and did not see it through to maturity and as a result lost their right to a tracker. During that investigation we identified a number of other issues. Instead of closing the book, the board took a decision in August 2015 to set up an independent product review group to work through the entire book so as to reassure parties that all customers were looked after. Instead of closing the book, we opened the book across the entire bank in August 2015 such that, by the time the Central Bank review was announced in December 2015, we already had a team with work under way in that regard.

Mr. Jeremy Masding

I assure the committee we did not close the book. The first question was in one part but the board and I decided it could be part of a more systemic issue. I give the committee my word that we did not close the book. We started to look at the matter in a broader way and that process morphed into the Central Bank of Ireland tracker mortgage review. I hear the Deputy's anger but I can look him in the eye and assure him we did not close the book. I promise him that.

There are 45,000 people or so on a variable rate of 4.5% and some may have misplaced the correspondence from 2015 and 2016. If they contact the bank now, will it honour the voucher for the valuation and pay for a valuation to be done on the property so they can access a lower rate?

Mr. Ger Mitchell

I am quite sure we would. I am not sure if there is an expiry date.

I am asking for a commitment.

Mr. Jeremy Masding

Yes.

Mr. Ger Mitchell

Yes we would, absolutely. We have plans to reissue packs to customers later this year.

I thank Mr. Masding and his colleagues for attending.

Sitting suspended at 11.48 a.m. and resumed at noon.

We are resuming in public session. I welcome Mr. Wim Verbraeken, chief executive officer of KBC Bank Ireland, and his colleagues. I understand that this is their first appearance before an Oireachtas committee.

I draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.

Mr. Wim Verbraeken

I thank the Chairman and the members of the committee for the opportunity to represent KBC Bank Ireland today. As this is our first time appearing before the committee, I would like to introduce our delegation. I am the CEO of KBC Bank Ireland and have been in this role since November 2013. I have been an employee of KBC Group since 1992 and joined the bank in Ireland in July 2013. I am accompanied by two senior members of the bank's management team: Ms Dara Deering, who joined the bank in 2012 as executive director of retail banking; and Mr. Des McCarthy, who took up the role of chief financial officer, CFO, in 2014. Both are also members of the bank's executive committee and board of directors.

As the committee will be aware, KBC Bank Ireland is a subsidiary of KBC Groep NV and, accordingly, is subject to the normal disclosure constraints of a publicly quoted company. The committee will have received our written responses to the queries in its questionnaire. There are a number of matters which we feel are commercially sensitive and which, as a private entity, we would not disclose publicly. I would like to focus on the following key themes: the bank's history; the bank's strategy and business model; the bank's performance and customer offering; how the bank is helping customers experiencing financial difficulties; and the bank's progress in the tracker examination.

KBC Bank Ireland is part of the KBC Group, one of Europe's most recognisable financial institutions, which is headquartered in Brussels and listed on Euronext. KBC Group is present with substantive operations in six countries in Europe and primarily offers banking and insurance products and services to retail customers and small and medium-sized enterprises. KBC Group has been a majority shareholder of what was then called Irish Intercontinental Bank since 1978. In 1999, KBC Group increased its shareholding to 100%. Importantly, KBC Group has supported its Irish operation through the financial crisis, providing ongoing liquidity and funding, together with additional capital injections totalling €1.8 billion. The bank did not receive direct support from the Irish State, nor did it participate in the eligible liabilities guarantee scheme or National Asset Management Agency, NAMA. Since 2013, KBC has embarked on a journey to transform into a "digital first" challenger bank, launching a retail banking platform to consumers in the Irish market. In February of this year, KBC Group reaffirmed its commitment to Ireland, making the bank part of its strategy to focus on its core markets. This commitment implies enhanced competition in the Irish banking market and more choice for consumers.

As this is KBC's first time before this committee, I would like to use this opportunity to share our insights as to how we see banking evolve in Ireland. KBC Group's commitment to Ireland was based on a number of key considerations: Ireland's demographics, having the youngest population in Europe with 40% under the age of 25 and, therefore, at an early stage in their banking life cycle; the population of Ireland being "digitally savvy" and open to new ways of banking; Ireland having a strong educational profile; and finally Ireland's economic recovery and the positive outlook for the country.

What do consumers expect from a bank in the future? Research that we have undertaken has very much influenced our strategic approach. Consumers have told us that they want the best in digital experience but they also want to be able to obtain professional advice, whether that be over the phone or in person at one of our hubs. Therefore while we are digital first, we also believe in the value of an on-the-ground presence. This insight into consumer preferences has helped shape the bank's distribution model which is quite different from that of other Irish banks, as we strive for seamless integration of physical and digital channels.

KBC is Ireland's newest retail bank, with a full suite of competitive products and a clear focus on digital in respect of which we are supported by our hubs and our contact centre. Thus far we have gained significant traction and the response from consumers has been very positive. Our relevance is increasing across all channels and products, from current accounts and deposits to investments and from consumer finance and mortgages to insurance. Our network has grown to a total of 15 hubs throughout the country. A 16th hub in Blanchardstown is due to open next quarter. All of our hubs have later opening hours and are open through lunch and on Saturdays to meet consumers' needs. In addition, our customers can avail of a dedicated 24-7 contact centre. We currently employ over 1,100 staff, almost double the number we had in 2012, and we have been rated as the retail bank with the best reputation for the past six years. Innovation in banking is at our core. We were the first retail bank in Ireland to offer both Android Pay and Apple Pay. More recently, we launched a new mobile app that allows customers open a current account on their phone in five simple steps in five minutes - a first in Europe.

We believe it important that the committee supports innovation and competition, and encourages new entrants such as KBC, so that consumers benefit overall through a better choice of offering. We would encourage the committee to seek ways to improve the switching process for consumers, such as empowering the acquiring bank to manage the end-to-end process for consumers. To encourage further competition, we ask the committee to review the basis for the allocation of the bank levy. As it is currently constructed, it constitutes a strong disincentive to growing a retail deposit business or entering the retail banking market. We have written to the Minister for Finance outlining our concerns.

Our strong performance was reflected in our results for the first half of this year, with an operating profit of €61.3 million before tax and impairments. We recently reached a milestone with over 250,000 customers having chosen KBC as their bank. Overall, it is our objective to become the primary bank for our customers.

KBC has been a significant mortgage lender for many years, consistently holding about 10% of the outstanding stock of mortgage loans. Throughout 2016 and 2017, the bank has continued to enhance its mortgage offering for new and existing customers. Research indicates that long-term value through low monthly repayments is what matters most to customers. KBC announced rate reductions across a range of fixed and variable rates in 2016 and more recently introduced a new ten-year fixed rate product to provide longer term certainty over mortgage repayments with interest rates as low as 2.95% for customers who also become a current account customer. Our no gimmicks approach towards pricing is aligned with our strategy to provide lifetime value.

As announced during an investor visit held in Dublin on 21 June, KBC Group will invest €1.5 billion in group-wide digital transformation between 2017 and the end of 2020. This investment will also benefit customers in Ireland. From its innovation hub in Dublin, the bank will continue to lead the way in delivering innovative firsts, providing 24-7 banking solutions for customers.

The bank also plans to launch a complete offering to the micro-SME segment over coming months with an initial focus on the professional sector based on customer demand, to include medical, legal, accountancy and technical professions. Customers in that segment will gain access to a very compelling digital offering and a business relationship manager to assist them with their needs.

We have deep empathy for customers and in particular mortgage customers who have experienced mortgage difficulties during the recession and its aftermath. The bank has engaged with customers in financial difficulty to implement a range of forbearance and restructuring options. This work has resulted in a significant reduction in the number of customers in difficulty or awaiting a resolution. These residual cases are complex and require further time. From our experience customers who engage with us early have achieved better outcomes and we actively encourage any customer in financial distress who has not already engaged with us to contact our arrears support unit.

KBC has worked consistently with customers in financial difficulty to avoid the need for a loss of property ownership. However, for genuinely unsustainable cases, such outcome may be unavoidable. Many of these cases are settled on a voluntary basis. Regrettably, the bank is sometimes forced to take legal action. Repossessing a property is always a last resort after all other options have been explored.

KBC employs a substantial number of staff to support customers experiencing financial difficulty. We also provide financial support including rental income support, legal advice funding and relocation fees. The bank continues to engage with customers through established independent third parties such as the Money Advice & Budgeting Service, MABS, the Irish Mortgage Holders Organisation and the StepChange Debt Charity Ireland.

On the tracker examination programme directed by the Central Bank, KBC is working closely with the regulator to conclude the current phase of activities, namely, the identification of affected customers. Within the framework set by the Central Bank, this review process is taking longer than originally anticipated. We acknowledge that this is very difficult for customers who have been negatively impacted. KBC takes this review very seriously and is determined to conclude this process as soon as possible.

While we have not yet fully determined the final outcome, the examination programme has identified that customers were, in some circumstances, moved off their tracker rates. All customers who we identified as being on an incorrect rate have since been put on the correct rate. After the final determination of the Central Bank on the findings and our proposals, the bank will contact with the affected customers regarding redress and compensation. We wish to clarify to the committee that as a result of a prior, narrower review, the bank addressed a specific cohort of customers in 2010.

As we work through this examination, we believe that it is imperative that the bank is guided by what is fair and right and that it does the right thing in the cases where customers have suffered harm. As the bank is working through the process, and its board of directors still need to make its determination, we feel it is premature to be more specific about the current examination. However, once concluded, the bank will provide details on the outcome of the review.

To conclude, I reiterate that KBC Bank Ireland's ambition is to be the customer-centric challenger bank for Irish consumers. We are part of a well-capitalised, resilient international financial group. We have access to support, innovations and learnings from within KBC Group.

My colleagues, Ms Deering and Mr. McCarthy, and I will now respond to any questions members may have.

I welcome Mr. Verbraeken and his colleagues. I hope that I have pronounced his name correctly. It is KBC's first appearance before an Oireachtas committee and I thank it for its co-operation.

I will begin with the tracker mortgage examination. Mr. Verbraeken's statement did not give any details and I think that was quite a conscious decision on his part. Of all the banks, I have received more representations from customers of Mr. Verbraeken's bank and its handling of the tracker mortgage examination than I have about any other bank. There is huge frustration among KBC's customer cohort on the lack of information, delays and failure to return people to the correct rate. As I am sure Mr. Verbraeken is aware, a public meeting is being held on the matter in Dublin this evening. I want to give him the opportunity to put some meat on the bones here. Can he give us an indication of exactly where the bank is at with this examination? Will phase 2 be completed by the end of September in line with the Central Bank deadline?

He indicated that all customers who the bank has identified as being affected have been put on the correct rate. When did the bank start putting these people on the correct rate and will he give us the numbers involved?

Mr. Wim Verbraeken

As I outlined in my opening statement, the bank is still going through the examination process, working closely with the Central Bank. We started that process in 2016. By the end of September 2016, we had come to an initial determination and an initial plan through the Central Bank. Since then, we have undertaken further review which is very complex and is essentially an iterative process. It is very comprehensive. We are determined to capture all the customers who have been impacted. We deployed considerable resources to that effort, which is still ongoing. It is because that effort is still ongoing and the bank's board of directors has not yet come to a final determination that we believe it is premature to disclose any interim partial figures or amounts. It is complex and comprehensive in that we are not only looking at customers with regard to contractual rights but also the context, transparency and disclosure which brings an element of subjectivity to considerations. That is what we are doing.

We are developing our determination around the identification of customers affected, plus a scheme for redress and compensation for those customers who will ultimately have been identified as being in scope and affected. That will be submitted to our board of directors and then obviously transferred to the Central Bank. I cannot give the committee a specific timeline with respect to the completion of that effort. We are determined to do this as soon as possible. We want to conclude the matter as soon as possible because we believe it is in the interests of the bank, consumers and the financial market in general, but our first priority is to be comprehensive and to be sure we do not leave any customers outside the scope.

To return to the specific question on the customers we have put back on the correct rate, the matter arose earlier in 2017. It concerns a batch of customers we had identified in the course of the effort we expended in 2016. This is, presumably, not a final cohort of customers whom we will put back on the correct rate.

Am I correct in saying Mr. Verbraeken will not put any numbers on it? Is that the position?

Mr. Wim Verbraeken

Yes.

Will the bank meet the Central Bank's deadline of the end of September for the completion of phase 2?

Mr. Wim Verbraeken

We are very close to the end of September today and we are still in the process so it is very likely that we will not have completed that.

Mr. Wim Verbraeken

Because it is a very complex and comprehensive process that is going through iterative phases of review and interaction with the Central Bank, which is now more intensive than it would have been previously. We are determined to complete the process.

By how much will the bank miss the deadline?

Mr. Wim Verbraeken

I cannot give an estimate.

Not even an estimate.

Mr. Wim Verbraeken

No.

That is not good enough. This is a deadline imposed by the regulator about a tracker mortgage examination concerning where customers were, in some cases, wrongly denied a tracker rate. Money was taken from them and Mr. Verbraeken will not put any figures on it. I will put some figures on it and I could go through a whole folder of them. I will give the witness two examples. One family wrote to me stating the impact on it is over €600 per month. It is a working family with two young children. Another family that contacted me believes it is overpaying by approximately €800 per month, yet Mr. Verbraeken cannot even give an estimate as to when he will complete phase 2. That is not good enough.

Mr. Wim Verbraeken

I appreciate the desire of the members, including the Deputy, to get to the bottom of this issue on a macro level, and also a micro level, given the questions and letters they receive. It is absolutely not our intention to be evasive in answering the questions from the committee but we believe that, given where we are in the process, we should focus on completing it thoroughly, meeting-----

When did the bank start the process?

Mr. Wim Verbraeken

We started it in 2016.

Mr. Wim Verbraeken

As soon as we received the instructions from the Central Bank. I believe they were issued in March 2016.

What was the 2010 issue, or the specific cohort in 2010?

Mr. Wim Verbraeken

The 2010 issue concerned a cohort of customers who had received, in 2008, an offer from the bank to switch to a fixed rate period. Initially, they were scheduled to move to a variable rate at the end of that period. Prompted by the Central Bank, the bank conducted a review at the time and decided these customers would go back to their tracker rate.

How many were affected at that time?

Mr. Wim Verbraeken

It was 571 customers. I can be specific about that because it-----

That is completed. When was that dealt with?

Mr. Wim Verbraeken

That was dealt with in 2010 during the time that these customers were still on their fixed rate. This was a matter that did not entail any redress and compensation because these customers were never overpaying what they should ultimately pay in interest.

It was a case that they were still on the fixed rate but entitled at the end of the relevant period to move to a tracker rate, and they did get that rate at the appropriate time so there was no loss for them. Is that the case?

Mr. Wim Verbraeken

Absolutely.

Did that not trigger a review within the bank? I appreciate that Mr. Verbraeken was not in charge at the time. An important issue was identified. Was there not a trawl through the mortgage book to examine the related issue of customers who may have come off a fixed rate and who were not offered a tracker rate?

Mr. Wim Verbraeken

None of my colleagues present were in the bank at that time and most of the then senior management are no longer in place. I understand this review was quite narrow in its scope. It was dealt with to the satisfaction of the Central Bank at the time. This did not trigger a wider review of the handling of tracker rate administration.

Is the witness saying to the committee that, in the current review, all the customers the bank has identified as being on the incorrect rate - there may be others - have been put back on the correct rate?

Mr. Wim Verbraeken

Those we have identified with certainty have been put back on the right rate.

There are many in dispute or not yet complete.

Mr. Wim Verbraeken

I would not call it "in dispute" but we are considering a variety of customer journeys with modification to contract either because a customer applied for a modification of the contract or because the bank offered a modification of the interest rate and the customer journey of that cohort, so that is still under consideration.

I find it extraordinary and am struggling with the fact that the bank started looking at this issue in detail under the direction of the regulator since March 2016. It is now almost October 2017 and it still has not got a handle on it. It cannot even give an estimate as to when it will have completed the assessment. It is more than a year and a half and the bank cannot even give us an assessment. What is that signalling to customers, on whose loyalty and goodwill the bank relies?

Mr. Wim Verbraeken

What I can say about that is that this is a process that is very complex. I do not believe we are too far behind where other banks would be based on public information but it is our view that we want to be able to conclude this once and for all and be able to stand over the outcome. At the conclusion, we will provide all the details. I hope that the next time we meet, we can talk about what the bank has done to address this issue and that it will meet our mantra of being a customer-centric bank in Ireland.

How is the bank communicating with the customers captured by the review.

Mr. Wim Verbraeken

We have a specific team that is available for customers with questions about their status and whether they are included in the scope. We have reached out to specific customers who were on an incorrect rate but there may be others, and there will be, who are no longer with the bank but who still need to be contacted about compensation and redress in due course.

When did the bank last write to all the customers it is examining?

Mr. Wim Verbraeken

We have not written to all the customers whom we are examining. We will address the issue with the customers who are in scope and impacted on an individual basis bilaterally once we have concluded the examination.

Is Mr. Verbraeken saying there are customers in scope, who are being examined and who have been captured since March 2016, who may still be on the wrong rate and that the bank has not written to them?

Mr. Wim Verbraeken

We have not contacted customers pending the conclusion of the examination.

That is extraordinary. I welcome the presence of the bank in Ireland and welcome the competition the bank provides but believe it will not last very long if that is how it treats customers. Has Mr. Verbraeken any answer?

Mr. Wim Verbraeken

We are going through our process and we want to be sure internally and meet the expectations of the Central Bank in this respect before we contact customers to determine whether they are affected or not.

I have a couple of quick questions on interest rates.

Mr. Verbraeken provided a schedule of existing interest rates, as well as a table of the categories of customers and of the total number of mortgages, between owner-occupier and buy-to-let properties. Some 49% or just under 42,000 accounts are on the standard variable rate. Is that a rate of 4.25% or 4.05% if they hold a current account with KBC?

Ms Dara Deering

That is correct.

As that is correct, approximately half the mortgage book is paying interest at 4.05% or 4.25%

Ms Dara Deering

In terms of the number of accounts, that is correct.

In December 2016, recognising that pricing for mortgages had moved to risk-based pricing and loan to value being a measure of risk, we made all of our new business pricing available to our existing customers, both those on fixed and variable rate mortgages because in some cases customers wanted to move to a variable rate or to a fixed rate product.

Okay. Of those 42,000 customers, what proportion have their current account with KBC and therefore are on the 4.05% rate, as opposed to the 4.25% rate?

Ms Dara Deering

If one takes the customers on a standard variable rate, since we introduced our current account discount of 20 basis points, 4% of those customers have opted for a current account with KBC and therefore have opted for the 20 basis points discount. We have written to those customers numerous times since we introduced our current account discount in 2015. To broaden it, since December 2016, when we made our new business pricing available to our existing customers, 10% of those standard variable rate customers to whom the Deputy referred have now opted to move to one of our loan-to-value, LTV, products. In total 14% of customers since 2015 have subsequently availed of a different rate.

I appreciate that. Of the 41,970 customers currently on what Ms Deering calls the standard variable rate, is it only 4% of those who have their current account with KBC?

Ms Dara Deering

That is correct.

The vast majority do not and therefore are paying a rate of 4.25%.

Ms Dara Deering

Clearly, we would love that figure to be higher because our objective is to have a broader customer relationship. That is why we bring out loyalty-type pricing, such as the 20 basis points discount, which is very popular internationally in KBC.

What is the requirement? Is it that customers hold their current account from which they pay the mortgage in KBC?

Ms Dara Deering

Exactly, Deputy, that is it.

Is that the only requirement? Is there no requirement for a minimum balance to be held?

Ms Dara Deering

They only have to pay their KBC mortgage from their KBC current account. That is the same for new customers. Interestingly, if one looks at our new mortgage customers, about eight out of ten of those new mortgage customers actually avail of a current account discount. They are happy when they take out their mortgage to open a current account as well. There are huge levels of inertia in the marketplace.

Is it the case that some 40,000 people could get a reduced rate tomorrow by opening a current account with KBC and paying the mortgage out of that current account?

Ms Dara Deering

That is correct.

In respect of the loan-to-value loan rates, the rate for loans with an 80% to 90% LTV is 3.7%. If somebody has a higher LTV, is there no LTV band for them and therefore they are on standard variable rates?

Ms Dara Deering

If a customer has a LTV greater than 90%, which is lending we do not offer in terms of new business any more, they can clearly opt for the current account discount on a variable rate and they can go from 4.25% to 4.05% or we have a range of fixed rate products for those customers. They can avail of a two-year fixed rate, for example, at 3.7%. In that example they could go from a 4.25% rate today and move to a two-year fixed rate of 3.7%, a 55 basis points reduction.

That 3.7% fixed rate applies to those with a higher than 90% LTV. I do not see that option in the table.

Ms Dara Deering

Were the Deputy to look at the table under existing customer rates with a LTV greater than 90%, one will see that a two-year rate is at 3.7%, including the current account discount.

That is a two-year fixed rate?

Ms Dara Deering

Yes.

For customers who have an improving LTV, have they the opportunity to move down the band on submitting a valuation to KBC?

Ms Dara Deering

Absolutely, they can do that at any stage in the process, once they submit an updated valuation to KBC.

May the customers do this more than once?

Ms Dara Deering

As often as they want.

Do they pay for the valuation?

Ms Dara Deering

They pay for the valuation, just like our new customers pay for a valuation. We have made our proposition exactly the same for new and existing customers.

Does KBC have a panel of valuers from whom the customers can draw a valuer?

Ms Dara Deering

We have a panel of valuers who are available for new customers and that same panel is available for existing customers. We have a dedicated section on our website explaining how the process works and how people get the documentation to submit to KBC.

Would it be fair to say that of the 42,000 customers on a standard variable rate of 4.25%, many of them would have a much lower LTV and could get a rate as low as 3.2% or 3.3% if they have their current account with KBC? Has the bank a profile of the LTV of those customers?

Ms Dara Deering

That is a fair question. It is a mix because it is a rate that we have not offered for years, but, for example, about 80% of those customers are in positive equity, so therefore they have options, whether that is to fix the rate or remain on a variable rate. The customers who are in negative equity again can opt for those rates, such as the two-year fixed rate that I have spoken about. Many of the customers could avail of lower rates based on an updated valuation which they could supply to the bank.

How often does the bank write to the customers?

Ms Dara Deering

In terms of our current account discount that we brought in in 2015, we have written to those customers quite a number of times by now. In terms of our variable pricing, our new business pricing that we made available to customers at the end of last year, we will include on an ongoing basis, information every time we write to customers on mortgages and we tend to do that annually, where we will give them all of the rates available, both fixed and variable. In addition, in all our communications on an ongoing basis, we make sure they have options.

I thank Ms Deering. Is the information of KBC's market share of new mortgage drawdowns on the record?

Ms Dara Deering

Yes. It ranges between 11% and 12% of new mortgages.

Okay. Does KBC compete on rates and not on cash-back offers?

Ms Dara Deering

Returning to Mr. Wim Verbraeken's opening comment, we have done a lot of research with consumers and what we hear back from consumers and customers of KBC is that they want to see value over the long term. That is how we have positioned our proposition and as Mr. Verbraeken stated in his opening statement, it is also the reason we announced a ten-year fixed rate product, which we will launch on Monday, which has a range of rates as low as 2.95%. Again that is looking at experience internationally from other KBC entities, where people tend to lock in and fix for longer to get certainty over their repayments.

Is there no distinction between new and existing customers in terms of treatment across rates and pricing?

Ms Dara Deering

The rates are available for everybody on the basis of the same application.

I thank Deputy McGrath and I call Deputy Pearse Doherty.

I thank the witnesses for coming before the committee. We were very eager to have KBC before the committee and I am glad that KBC has been able to facilitate that.

I am the finance spokesperson for my party. In his opening statement, Mr. Verbraeken referred to some of issues and the difficulties in terms of switching. KBC has great offers in terms of the reductions in interest rates for savers and those who have a current account with KBC. I opened an account with the branch but it is very difficult to do that, and I am a finance spokesperson. It is not an easy system that is in place. The forms would put a person off, they are still lying on top of the fridge, even though I know there is money to be made in terms of switching. I think the committee should look into some of the obstacles that are there in terms of switching and how customers could get better value for money.

I want to focus on tracker mortgages. I found it incredible and it is very hard to shock me at this stage in terms of the tracker mortgage scandal, but on the question from Deputy McGrath, KBC failed to provide any figures at all on it. I can understand the bank's position to a certain point, which is that KBC wants to give the final figure and that is okay. I can understand the board's rationale for that but as for KBC's refusal to give the committee the number of individuals whom it has contacted, that is a number that is defined by the bank. I know the phase 2 investigation is ongoing and the number will change and probably increase or perhaps decrease, but can KBC tell the committee the number of customers who have been informed that they are part of this review?

Mr. Wim Verbraeken

We are not in a position to provide any numbers or amounts related to the phases of the examination that is still ongoing.

We understand this is difficult for our customers and that what happened to certain customers was wrong and should not have happened. We hope and are determined that when we go public with the full report on what we have found and considered we will demonstrate our commitment to address this properly and restore public confidence in our fairness in this matter.

In terms of the number of customers who have been addressed to date, we have not included the 571 affected in 2010 although they should be included because other banks did not perform the correction that KBC did in 2010 and so it should be considered in the total package, but the numbers involved may or may not paint a picture that is representative of the ultimate outcome. So it is not helpful to make that public at this stage. Ultimately we will provide the full overview and as we go through the process and are sure that certain customers are affected we will not wait to address those accounts.

Everybody that the witness is certain has been affected has been put back onto tracker rates and told they are part of the review.

Mr. Wim Verbraeken

Correct.

Have individuals who the witness is certain have been affected been issued with redress letters?

Mr. Wim Verbraeken

Not yet. We have told them we will get back to them with our proposals for redress and compensation. We are not yet in a position to start that. We hope to do so very soon and will then start making payments to those customers.

In view of the witness's failure to give us the relevant information we have to rely on unverified information from individuals working on behalf of customers that indicates 1,000 of the bank's customers are likely to have been affected by the mortgage tracker scandal, some of whom have been contacted by KBC to reinstate them onto a tracker rate or not. Have any individuals the bank has verified as having been affected lost their home?

Mr. Wim Verbraeken

There will be cases of loss of ownership. In the total scope of affected customers, there will be cases of loss of ownership.

Has the bank verified any customer of the bank who has lost his or her home as a result of the tracker mortgage issue?

Mr. Wim Verbraeken

That part of the examination is ongoing and, therefore, I cannot be definitive about it. Our reading of the factual pattern indicates there will be cases where a loss of ownership was primarily caused by the customer not having been on the correct rate. As the Deputy knows, there is always a confluence of factors in loss of ownership.

As the bank has determined that some people have lost their homes, what does the witness say to such individuals, husbands, wives and children who have lost their home as a result of the bank's action but have not received any letter on how their situation will be rectified, although losing one's home can never be rectified, and have not received any offer from KBC trying to address the damage the bank has done? What does the witness say to such people? Is that not just additional injury that the bank is inflicting on those families?

Mr. Wim Verbraeken

As I said in my statement, we would start by wholeheartedly apologising to such customers. I fully accept the Deputy's point that we cannot restore customers who have lost their home as a result of the tracker issue to the same position they once held. We are devising a scheme to hopefully provide such customers with compensation that is commensurate with the circumstances of their case, would allow them to move on with their lives and is reflective of the harm they suffered.

I appreciate that. However, the witness cannot tell the committee or people watching these proceedings who may have lost their homes when they will receive communication from the bank to say when the bank will right that wrong. Is there no hope or relief the witness can give them that they will at least be prioritised and will receive communication from the bank before Christmas or can the witness give any indication in that regard? Deadlines are already being missed. It is very unfair. The board sits in its boardroom and plans to get everything together and have one big bang announcement because it does not want it drip-fed into the media. However, while the board is sitting in its boardroom some people are out of their houses and others are struggling to get by. It is nice to be able to package it all up together and present it as one but that is another insult and injury to those affected. Can the witness give any comfort in terms of those who have lost their homes being informed before a certain date?

Mr. Wim Verbraeken

These cases will be prioritised because evidently the biggest harm has been caused by the actions of the bank. I cannot commit to a timeline but it will happen as soon as possible. I do not agree with the Deputy's characterisation of a boardroom arrangement to package and conclude all of this with one public statement and move on. As senior managers of the bank in Ireland we are very aggrieved by some actions that were taken approximately ten years ago. Whether there is one case or a thousand cases as the Deputy is inferring we are determined to capture all of them, look at their specific circumstances and apply redress and compensation.

I appreciate what the witness is saying in regard to a new board now being in place and that current management was possibly not in place when those decisions were taken but, given the witness's failure to offer any timeframe for the bank communicating with individuals the witness knows his bank caused to lose their home, I find it difficult to believe the bank is in any way really grasping what is happening to its customers. That is not acceptable. The bank has created a situation where we do not know whether customers who lost their homes will be communicated with before this Christmas or the next or the one after that. No indication has been given beyond saying it will be done as soon as possible. The witness says they will be prioritised yet there is no evidence of that being done thus far. Based on the number of customers of other banks who have lost their homes, I imagine the number of individuals affected here might be a dozen or two dozen and not a huge number of accounts. It should not be beyond the collective wisdom of those in KBC to prioritise them because although the bank has done serious damage to many of its customers, those who have lost their homes need prioritisation most. Their cases should be pulled out, they should be communicated with and an offer made to them. I cannot imagine that that is happening.

Mr. Wim Verbraeken

As part of the examination we are considering a variety of cases where there has been loss of ownership to see whether those customers were affected by the tracker issue. Very often in cases of loss of ownership there is a combination of factors at play. We are trying to objectively determine whether certain cases of loss of ownership were caused by the tracker issue or not.

We are isolating these cases pending the conclusion of the examination to not make matters worse for these customers, to make sure we are not proceeding with certain actions in terms of loss of ownership pending the conclusion of this review.

What provisions has the bank made to deal with the fallout of the tracker mortgage scandal within the bank?

Mr. Wim Verbraeken

We made a provision in 2016 based on historical information, and we were publicly quoted on this, but since this is part of the ongoing examination we have not made any public statements about it. We have not made any provision in 2017. I will ask my colleague, Mr. Des McCarthy, to clarify that point further.

Mr. Des McCarthy

A small provision was made previously-----

Can the witness tell the committee what it was?

Mr. Des McCarthy

At this stage we are not prepared to elaborate further on it.

To clarify, the CEO said the bank was publicly quoted on the provision that was made in 2016. Can Mr. McCarthy confirm what the provision was in 2016?

Mr. Des McCarthy

It was a provision relating to the ongoing tracker review.

What was the sum?

Mr. Des McCarthy

The sum will be released with our financial accounts when they are published later this year.

Sorry, the witness can correct me if I am wrong. The CEO said the bank made a provision in 2016 and it was publicly quoted on that provision.

Mr. Wim Verbraeken

That was on the fact that we had made provision.

Mr. Des McCarthy

It was on the fact but not on the amount.

Mr. Des McCarthy

In terms of the ongoing review, the accounting rules are quite clear that in order to take a provision one must have a reliable estimate of what the damage and the retribution will be. As Mr. Verbraeken has said, we still have not come to a final determination on the numbers either of the people who have been affected by the review or the amount of compensation and redress for those people.

It is getting confusing now. KBC Bank made a provision in the 2016 accounts but it will not make a provision in the 2017 accounts. Is that correct?

Mr. Des McCarthy

We have not yet made a provision relating to 2017. That is correct.

The reason it has not done so is that it cannot have a reliable estimate.

Mr. Des McCarthy

That is correct.

That is what the accounting standards state, which are the same accounting standards that applied to the 2016 accounts.

Mr. Des McCarthy

That is correct.

The bank was able to make an estimate at that point, even though the standards still stated that it had to be a reliable estimate. Despite the fact that the bank is a year further into its investigation and supposed to conclude phase 2 within a couple of days, the bank now has less information and less reliability in its estimates than it had a year ago. How does the witness square that circle?

Mr. Des McCarthy

The provision we made in 2016 related to a small and confined cohort of customers in the review. We had a reliable estimate at that time relating to that specific cohort. When we have made a final determination on the remaining cohorts we are examining we will then assess what, if any, remaining provision needs to be taken.

Okay. Obviously, IIB Homeloans, which is where I have a loan, was the company that made the loans back at the height of the boom. IIB Homeloans wrote to all of its brokers on 7 November 2006 stating that there was fantastic news from IIB Homeloans and that all IIB Homeloans fixed rates would run onto tracker rates upon expiry, offering the brokers' clients even better value. The product features were that for loan amounts greater than €150,000 the tracker applicable would be 1.25% and for loan amounts less than €150,000 the tracker rate that would apply would be 1.40% tracker. This was in a letter from IIB Homeloans - I have the letter - to all the brokers. Is KBC Bank going to honour that?

Mr. Wim Verbraeken

As this refers to the tracker issue it is part of the examination we are currently conducting so I cannot be definitive and commit anything publicly around the flyer sent to the brokers in 2006.

What is Mr. Verbraeken's understanding of the background to that flyer?

Mr. Wim Verbraeken

I cannot comment on that publicly given that we are still going through the examination.

I presume it is at least false marketing if the bank is not going to honour it. That is entrapment. In 2006 most of the bank's product was sold through brokers. If a broker tells me that I can fix the rate and it will automatically roll on to a tracker, I enter into the contract in good faith. Would the witness accept that?

Mr. Wim Verbraeken

I cannot comment on that point.

Let us refer to something that perhaps the witness will comment on. I participated in the banking inquiry. One of the matters that alarmed us during that inquiry was how financial institutions were issuing loans to their directors, senior managers, spouses of directors and so forth. It is an issue that presented in the courts. We know it was a major risk at the time in the financial system. How is it that, years later, KBC Bank has been fined €1.4 million by the Central Bank for 18 breaches of improper lending to connected parties, which fall into the category of senior directors, senior managers, spouses or shareholders? It happened not once but on 18 occasions. How is that such an abuse of lending was taking place in the bank over that period? We are not talking about extensions of term limits, moderate amounts or changes of small quantities to the loan amounts. These were not student loans, but loans of €5 million, €6 million and so forth to connected parties. How is it that the bank did not have the proper procedures in place and the Central Bank had to ask the bank to conduct an audit in 2013 in this regard and fined the bank €1.4 million?

Mr. Wim Verbraeken

The bank was sanctioned by the Central Bank. We are under a settlement agreement with the Central Bank so we are precluded from providing specific information around the cases. I can assure the Deputy that no improper lending took place to individuals or to companies. The breaches of the related party lending code to which the Deputy referred related to and included companies that were associated with the KBC Group. We would see these breaches primarily as technical breaches of the code. No customers of the bank were disadvantaged. There was absolutely no beneficial impact of favourable terms that the bank granted to the related parties identified. However, it is true that the bank failed to adhere to the letter of the code and we have since addressed this through the arrangement of much stronger procedures throughout the bank at various instances of the bank dealing with related parties.

I am concerned that the witness is trying to play this down as a technical issue. The bank failed to adhere to the code of principles that is set down in respect of lending to related parties not once or twice but on 18 occasions, which were extension of maturity for term loans of €5.5 million and €6.5 million and other variations to loan documentation that did not go through the committee they should have gone through. It was completely in breach of the Central Bank's rules. The bank was hit with a hefty fine for what the witness terms a technical breach. Does he not think it was a little more than a technical breach?

Mr. Wim Verbraeken

I am absolutely not trying to minimise the issue. It was a serious issue. It was a failure of the bank to adhere to the code. However, all of the breaches were identified by the bank and reported to the Central Bank.

Who reported them originally in 2013? Was it the senior management of the bank?

Mr. Wim Verbraeken

Yes.

It was the senior management. I am aware that the bank reported further instances later. However, in 2013 the Central Bank raised concerns. The Central Bank said that in June 2013 it raised concerns with the firm regarding its compliance with the code and required the firm's internal audit department to carry out a review of its compliance with the Central Bank's codes generally.

Is Mr. Verbraeken stating that is not true and that it was actually KBC, as he just said, that informed the Central Bank of these breaches?

Mr. Wim Verbraeken

The bank informed the Central Bank in various phases of breaches. The bank informed the Central Bank in the first instance of a first discovery of two breaches, subsequently conducted its own investigation into the matter, and identified further historic or more recent breaches which were reported to the Central Bank.

The details are that on 8 May 2014 and again on 26 June 2014, KBC Bank informed the Central Bank of breaches. That is a year after the June 2013 request by the Central Bank, relating to its concerns about compliance with the code, asking KBC's internal audit department to carry out a review. Will Mr. Verbraeken correct the record and say that it was not KBC that identified this issue but the Central Bank that asked it to carry out the review, and that as a result of the review, KBC informed the Central Bank in different phases that there were breaches of lending rules within the bank?

Mr. Wim Verbraeken

I do not think my statement contradicts what the Deputy says. After the first instance of reporting, the Central Bank prompted us and voiced its concern about the procedures of the bank related to that issue. That led to an in-depth investigation of the matter by the bank and the discovery of further historic breaches.

Moving on to the final issue, KBC has engaged in 209 personal insolvency arrangements to date. Will the witnesses give a breakdown of how many of those arrangements involved the family remaining in the family home? Did all arrangements result in the family remaining in the family home?

Mr. Des McCarthy

To the extent that the personal insolvency arrangements, PIAs, were agreed, I suspect the family remained in the family home.

How many did KBC object to?

Mr. Des McCarthy

My understanding is that we have more than 550 PIA applications and we have objected to approximately 140. We have just under 100 in the pipeline to review and the remainder have been approved.

Every application is individual and we are not going into individual, commercially sensitive information, but are there any trends in the reasons for KBC's objections and the level of objections?

Mr. Des McCarthy

I am not aware of any trends to the various objections.

We discussed mortgage-to-rent earlier with Permanent TSB, and AIB has announced that it is entering an arrangement with the Irish Mortgage Holders Organisation. David Hall of the Irish Mortgage Holders Organisation is on record as saying that he is engaging with other financial institutions about the potential of a similar arrangement with this new housing agency to purchase properties, and the residual debt would be written off with the original owners being able to rent the properties from the housing agency. Is KBC looking at that or is it not interested in it now?

Ms Dara Deering

That is a very good question and we are very interested in it. We have worked with the mortgage-to-rent scheme since the very beginning. We welcome the reform to the scheme where more people will be eligible under the rules, whether that happens on an individual basis which we continue to work on, or with third parties with which we are in active discussions. Those third parties are looking at fast-tracking options for customers to move to mortage-to-rent and we see that as a very good solution for the cohort of customers that qualifies under the rules of the scheme. We will continue to work on an individual basis and we are in active discussions with the various third parties about whether that can be accelerated.

I welcome the witnesses. When they made the provision in the 2016 accounts, which they have not done in 2017, did they have to notify the Stock Exchange?

Mr. Wim Verbraeken

It is very likely given the low materiality thresholds that this would be price-sensitive information.

Does that mean KBC would have to notify the Stock Exchange?

Mr. Wim Verbraeken

KBC Bank would presumably make a public statement about that.

Is that the reason it may not have released the 2017 provision?

Mr. Wim Verbraeken

That is not the reason. As we indicated, it is because we have not come to the determination according to accounting standards in the process of the review we are conducting at this point to ascertain an amount for the provision.

Has KBC sold any of the loans to vulture funds?

Mr. Wim Verbraeken

We have not sold any portfolios of retail or SME corporate loans to vulture funds to date.

Does KBC plan to do that?

Mr. Wim Verbraeken

We cannot exclude the possibility that, at some stage, we would sell certain loan assets. It might happen but there is currently nothing in preparation.

The witnesses say that KBC has 15 hubs in Ireland. Where are they?

Ms Dara Deering

We have some in Dublin. We are in the main population areas, including Cork, Galway, Limerick, Maynooth, Naas, Dublin and Kilkenny. As Mr. Verbraeken said in his opening statement, we will open a hub in Blanchardstown shopping centre within the next quarter.

Does this mean people from Mayo, Sligo or Donegal have to travel to Galway if they want to deal with someone from the bank in person?

Ms Dara Deering

People have a number of options. Approximately 60% of our customers open accounts through our phone or digital channels. We have physical hubs. We also have a large network of brokers whom customers can deal with in every location, and that is available to people on both mortgages and deposits. We have a range of channels through which customers can interact with KBC.

Therefore, there could be a brokerage in some of those regions.

Ms Dara Deering

We have brokers in most counties that deal with KBC because they are still an important channel to the bank.

Does KBC entertain small developers who develop five, six or 20 houses or whatever? Does KBC facilitate loans or capital for them to develop projects?

Ms Dara Deering

We lend to retail or personal customers. As we said in the opening statement, we will extend that to micro-SME later this year based on demand. We do not and have not provided funding on the corporate or development side for quite some time and we have no plans to do that in the medium term. We are focused on building a retail and micro-SME proposition for this marketplace.

On employment, many people work on fixed contracts for five years, seven years, ten years or whatever, and a number of years of the contract may have taken place by the time they apply for a mortgage. Is it taken into account that it is a disadvantage to be on a fixed-term contract rather than be employed on a permanent basis, for example, in the case of the Civil Service?

Ms Dara Deering

It is a valid point because the nature of employment is changing and that is what the Senator is getting at. If a person is on a fixed-term contract, we look at the sector that person is in and the likelihood of the person getting another role when that contract comes to an end. We see that is the case in many situations, so in those circumstances, where fixed-term contracts comprise a person's sector and the likelihood of that person getting another role is high, we will take that into consideration for a mortgage.

It may not be a disadvantage in many cases.

Ms Dara Deering

Absolutely.

On small businesses, many people complain about the high overdraft interest rates. I am not talking about KBC but about other banks. What rate does KBC charge for overdrafts?

Ms Dara Deering

We have not launched a proposition for the business sector yet. We will do so in the last quarter of this year, so therefore we have not made that proposition publicly available. I can say to the committee that we have benchmarked all the fees and charges for that proposition and that it will be very competitive in the marketplace.

What is the interest rate on the overdraft that KBC provides with a mortgage?

Ms Dara Deering

On the personal one, I will have to come back to the committee on that specific. We have an overdraft on our retail current account proposition. I just do not recall it off the top of my head. I can come back to the committee on that.

I spoke to Mr. Verbraeken earlier. I am a customer of the bank, as I am of other banks. KBC Bank has a branch in Kilkenny. I have to say I have been impressed by the manner in which the bank engages with customers, both through its technology and through its branches.

When Mr. Verbraeken agreed to come before the committee today, because the bank has a different offering and a different way of presenting its offerings to the public, I expected he would present his case quite differently. The bank is customer focused, as most businesses are, but it is particularly customer focused. I have to say that I am deeply disappointed that Mr. Verbraeken does not even attempt to address the numbers. There is a sense in Mr. Verbraeken's position that he wants to get to the end of it, he wants to have this overall statement etc., and maybe offer the compensation and deal with it that way. While we are waiting for that, there are many customers out there - we do not know how many - who are suffering a human tragedy of a kind because their homes have gone and their credit rating is probably gone. There are cases where families have not only been devastated by this but broken up over it. They are driven to the point now where they are meeting tonight at 7.30 p.m. in Citywest. Will Mr. Verbraeken have someone at that public meeting to represent the bank?

Mr. Wim Verbraeken

We have not been invited to the meeting to which the Chairman is referring.

It is a public meeting.

Mr. Wim Verbraeken

We have heard of the meeting through social media but we will not be present at it. We believe that our focus today should be on working through the various matters that are in front of us on the tracker examination issue, concluding it as soon as possible and then contacting and engaging with the customers in scope who are affected. That is the process that we are going through.

If I went to the public meeting tonight and I repeated at that public meeting that my position was as Mr. Verbraeken has outlined, I would probably be lynched before I would get to the exit door. That is how angry the customers are. They are angry because of the lack of information and the devastating effects of living in banking limbo is causing them such distress. Mr. Verbraeken has offered nothing today in terms of consolation for those customers. He has not given us numbers. Mr. Verbraeken will not give us a date by which the bank will conclude its examination. That is deeply frustrating and annoying, particularly because Mr. Verbraeken has come to the meeting. When Mr. Verbraeken decided that he would come here and give his case, I thought that he would at least outline some indicative timeframe for dealing with this, and he has not.

I can only then move to the next question. Where a customer feels that he or she should be part of this review, and, obviously, that the customer is, in terms of his or her tracker position, and the customer is in deep difficulty, the customer is in trouble financially and will be in deeper difficulty the longer it takes KBC Bank to reach a conclusion to its examination, does KBC Bank prioritise that customer? Does the bank bring such customers in and go through their case and offer a solution, or is it the same answer that Mr. Verbraeken will give them that they will have to wait until everything is concluded?

Mr. Wim Verbraeken

First, we assume that all customers who have indicated that they believe they have been harmed by the bank's action have genuine concerns and their aspirations are genuine. With respect to customers in financial difficulties, we have a very significant programme that has been running for years to engage with customers. As I indicated earlier to Deputy Pearse Doherty, we have taken steps to isolate customers who would be in the scope of the examination from the normal proceedings that would take place with customers specifically related to loss of ownership, whether it is voluntary or through the legal route, to ensure that the harm is not further compounded by actions of the bank. Obviously, as soon as we have determined whether a customer is among the affected category, we will deal with that case specifically taking into account the responsibility of the bank in that respect.

If there are customers, either in the Public Gallery or watching this on their screens, who hear that message that if they are in this type of difficulty, there is a way in the bank of addressing their case specifically based on the hardship, financial and otherwise, they may be experiencing, will the bank reach out to those people?

Mr. Wim Verbraeken

If these people make contact with us, we will obviously set a procedure in motion to engage with these customers and find a solution for them, whether it is short term, medium term or longer term.

Has KBC Bank had that kind of contact already from individuals involved in this tracker issue? Have individuals come forward stating that they are in difficulty and they need the bank's immediate attention, and asking can the bank deal with them? Has KBC Bank had that experience to date? Has the bank dealt with customers like that in a positive way?

Mr. Wim Verbraeken

We have a number of customers who have registered their concerns with us or believe that they should be considered as part of the scope for this review. Personally, I am not aware of any cases of the deep distress to which the Chairman is referring.

Ms Dara Deering

Likewise, I am not aware of any cases where customers have come forward to us as a result of the tracker review where they signalled they were in distress. There are customers who come forward to us in the normal course of events where they are in distress and, clearly, we deal with them in a very delicate manner.

But if the bank had, it would obviously deal with them is what Mr. Verbraeken is telling us.

Ms Dara Deering

In the normal course, of course.

Mr. Wim Verbraeken

Absolutely, yes.

At least we have that much information for them.

How robust is the bank's paper trail in respect of all of these accounts? Is Mr. Verbraeken satisfied that the bank has sufficient information on each account that makes him believe the bank may have all of the information or does he feel there are gaps in the bank's system?

Mr. Wim Verbraeken

Obviously, some of these events go back more than ten years. We are, and it is part of the reasons it is so time consuming, going through these documents - often paper based. Indeed, we have come across cases where there is information missing. It is part of the consideration that the bank is making in providing customers with the benefit of the doubt in these cases.

Okay. In terms of dealing with the Central Bank, KBC Bank will not meet the deadline. Obviously, KBC Bank will inform the Central Bank of that. Is KBC Bank expecting to be sanctioned because of that?

Mr. Wim Verbraeken

We have been in discussions with the Central Bank on the process. Let us say, we have no specific expectations around our current timeline in terms of the impact that would have on enforcement procedures.

An issue was raised earlier with Mr. Verbraeken about one particular client having to pay €800 in excess.

A comment was made earlier about dealing with individual cases that might come to the bank. I presume such a case falls into this category.

Ms Dara Deering

Any customer in any level of financial difficulty should talk to KBC. We always encourage that.

Will the bank address the cases of people in financial difficulty who find themselves in scope because the bank has not addressed their tracker mortgage issue and who come forward and state the bank is causing them to lose their home or not be able to look after family matters in a way in which they would like? Ms Deering is saying the bank will attend to this.

Ms Dara Deering

We will look at every case.

Ms Dara Deering

If people are in financial difficulty, which is the example given by the Chairman, then of course we will look at their circumstances.

I will not get into the figures, because the witnesses will not tell us what they are, but in 2016 the bank believed it had a small number of tracker cases. Has this dramatically changed? Do the witnesses consider dealing with these trackers to be a big, small or medium problem for the bank?

Mr. Wim Verbraeken

I would not be able to qualify the issue as big, small or medium. I can say with regard to 2016 that in a number of cases there could be absolutely no doubt the bank had wrongfully moved customers off a tracker or denied customers a move to a tracker. This was absolutely clear. As we go through the examination we are finding additional cases.

When that number of cases was identified in 2016 the bank addressed the issue.

Mr. Wim Verbraeken

We addressed the issue in terms of putting those customers back on the rate they should have been on.

Okay. Is there any message the witnesses want to give to this public meeting?

Mr. Wim Verbraeken

The only message we would like to convey to all our customers who have been harmed is that the bank wholeheartedly apologises and we are working diligently on it. We appreciate this may not be the impression people might have, but we are diligently working to conclude this.

We asked other banks about a solution. KBC is not prepared to give a date by which it might deal with all of these issues, but Christmas is usually a deadline by which people try to deal with as much as they can. Do the witnesses believe the bank can issue any type of statement in this regard? Are they reluctant to do so?

Mr. Wim Verbraeken

I am very reluctant to be specific. I absolutely appreciate the sensitivity on this issue. We are working diligently to conclude this matter. We will not waste any time once we are in a position to start paying out redress and compensation.

Do the witnesses believe they will come back to the committee at that stage and perhaps go through the numbers and the compensation packages?

Mr. Wim Verbraeken

As I said earlier, I hope the next time we come before the committee we will be able to give it an extensive overview of what we have uncovered and the corrective actions we have taken.

I stress again, because I understand the difficulties of the customers, that this is a missed opportunity for the bank attending the committee hearing today not to avail of the public opportunity to signal something to the customers. The witnesses have apologised and said the bank is prepared to look at individual cases should people be in difficulty, and I presume it will be made a priority in the bank, and that they will come back and inform us again of the outcome of the examination. The witnesses could have put a little more into the public domain on a day when a public meeting has been arranged out of frustration and anger to deal with this. I regret they have not taken the opportunity to do so.

Mr. Wim Verbraeken

I appreciate that. When we accepted the invitation to appear before the committee at this meeting it was to speak about a variety of issues pertaining to the bank market, and we had hoped to have been in a position to be more definitive and more transparent on this, but we believe the priority should be about bringing this to a proper conclusion.

If we have to communicate any individual cases to the bank to whom should we write?

Mr. Wim Verbraeken

The committee can write to me.

Directly to Mr. Verbraeken?

Mr. Wim Verbraeken

Yes.

How many, if any, people have lost their homes because of the mortgage situation?

Mr. Wim Verbraeken

I was asked the same question earlier. We believe that, ultimately, cases will be found where customers lost their homes primarily as a result of not being on the correct rate, but we cannot disclose any specific numbers at this stage.

To date, how many people have lost their homes?

Mr. Wim Verbraeken

I am not in a position to disclose this.

This was dealt with earlier.

Mr. Wim Verbraeken

I can say it is very likely that we will have cases.

Mr. Des McCarthy

With regard to the question on the overdraft rate, it is 13.5% for authorised overdrafts.

I thank the witnesses for attending and I look forward to meeting them when they have come to a conclusion on their review.

The joint committee adjourned at 1.30 p.m. until 9.30 a.m. on Thursday, 5 October 2017.
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