Léim ar aghaidh chuig an bpríomhábhar
Gnáthamharc

Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach díospóireacht -
Thursday, 5 Jul 2018

Banking Sector in Ireland (Resumed): Bank of Ireland

Moving to No. 7, Bank of Ireland, I welcome Ms McDonagh and her colleagues to the meeting. I remind witnesses to please turn of their mobile telephones or remove them from the desks so that there is no interference during the meeting.

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.

Ms Francesca McDonagh

I thank the Chair and members of the committee for the invitation to attend today. Joining me is Mr. Gavin Kelly, CEO of our retail Ireland division, and Mr. John O'Beirne, head of products. In my opening remarks, I will focus on three key areas; the external environment in which we operate, the transformation under way within Bank of Ireland and how we are responding to a number of key issues facing our sector and our customers.

First, I will outline the external environment in which we operate. As members know, the Irish economy is expanding. Gross domestic product, GDP, growth has been well above the euro area average since 2011. This strong performance is translating into job gains with falling unemployment. More than 2 million people are now at work in Ireland, with figures out this week putting unemployment at just over 5%. This is down from a peak of almost 16% just a few years ago. Looking ahead, Ireland is going to see significant change.

The national development plan, Project Ireland 2040, sees a population growing by more than 1 million people, up 50% in cities beyond Dublin, with a one third increase in job creation and a need for half a million new homes. Bank of Ireland is strongly supporting this growth. We are the largest lender to the Irish economy, a position held for each of the past four years. In 2017 we provided €7.1 billion in lending to personal, business and corporate customers across Ireland. This includes providing more than 50% of all new lending to Irish businesses, including the agricultural sector, and supporting two out of every three companies engaged in foreign direct investment, FDI, in Ireland.

Banks ultimately exist to support their customers. Therefore, wherever possible, we work to enable our customers to overcome the challenges they face. In Ireland today, one of the most pressing of these challenges is access to housing. We are currently funding the construction of almost 3,000 residential units and 1,700 student accommodation beds in Ireland, and are supporting development on 160 sites across the country. Last year, we enabled approximately 8,000 people to buy a home in Ireland.

In the years ahead, we want to do more to support house building and home buying and business and corporate lending. We recently announced our new strategy. This reflects both the expanding Irish economy today, and the considerable demographic changes forecast over the coming years. This strategy will see us playing an even more active role in Ireland’s economic development – growing our loan book by about 20% over the coming four years, with approximately €9 billion lending growth focused primarily on mortgages, business lending and support for construction and development. To help us do this, we have started a significant transformation programme within the bank. There are three parts in this programme; culture, technology and our business model.

I will first address culture. A healthy internal culture in any organisation is vital. However, it is the external proof of this culture that gets the most attention. Put simply, a good culture creates great customer outcomes. As part of our culture review work over the last six months we have launched a new purpose statement and set of behavioural values. Bank of Ireland’s purpose is to enable our customers, colleagues and communities to thrive. Our values are to be customer focused, accountable and agile, and to work as one team. To embed our purpose and values within the company, we recently held 50 events for 6,000 colleagues across the bank in Ireland and in the UK. We are also reducing the number of layers between head office and our front line. This will ensure our senior managers are closer to our customers. That will be positive in a number of ways. A simpler organisation will empower our people, speed up decision making, and make the bank more responsive to customer needs.

Our technology is the second part in our transformation programme. Bank of Ireland’s systems must be modernised. This is why we are undertaking a once-in-a-generation investment in our technology. We are replacing myriad legacy systems with simpler, state-of-the-art technology designed for how customers bank today and into the future. While core technology is a big part of this, we are also making improvements in our digital channels, services and security.

The third part of our transformation programme is our business model, that is, how we are structured and how we serve our customers. I want to ensure that digital service is combined with a physical presence and personal touch. This is particularly true for Bank of Ireland. We are committed to maintaining our extensive branch network, which currently operates in 265 locations in communities across Ireland, the largest reach of any bank.

I have listened carefully to feedback from our customers since taking up my role as CEO. It is clear that we need to improve the service we provide. Among a number of initiatives, we are now increasing our full-service branches by more than 160%, from 61 to 164. These branches will have a counter service during the full day, not just morning hours. We are increasing the number of employees in our branches and contact centres – again, this is in response to customer feedback on the need for more accessible support for day-to-day banking. We are also going to continue to use our branch network to support small businesses across Ireland. Some of our branches in Dublin, Cork, Limerick and Galway offer spaces where startups can work for free. What we call our Startlabs and FDI hubs, in Dublin, Galway and now New York help companies at the next stage of their development – growing and expanding into new markets. We are proud that our branch network is connecting, supporting and enabling the communities we work and live in to thrive.

There are a number of issues facing our sector and our customers which we are also addressing, including Brexit, regulatory capital requirements and the tracker mortgage examination.

On Brexit, having worked in nine countries in different parts of the world, I understand the value of being outward looking. It is something that has served Ireland very well from an economic, social and cultural perspective. Nonetheless, Brexit is a reality for which we must prepare. We have been working with our customers to provide as much support as possible as they plan for the United Kingdom to leave the European Union. We have held 26 "prepare for Brexit" events across Ireland. They are aimed at the small and medium-sized enterprise, SME, community, with partners that include Bord Bia, Enterprise Ireland, the Irish Business Employers Confederation, IBEC, and the British-Irish Chamber of Commerce. Additionally, the bank is a strong supporter of and participant in the Strategic Banking Corporation of Ireland, SBCI, Brexit loan scheme. We have held a number of events to inform SMEs of the scheme, its features and how to apply.

With regard to the regulatory capital requirements, banks in Ireland continue to be impacted on by the financial crisis. We see this in both non-performing exposures, NPEs, and the regulatory capital requirements banks must observe. At Bank of Ireland, we remain highly focused on reducing our NPEs. We have made significant progress in that regard, reducing our stock of impaired loans by almost 75% in the past few years. We have the lowest level of NPEs as a percentage of customer loans of any bank in Ireland. According to Central Bank statistics, Bank of Ireland is three to four times better in terms of Irish mortgages than the industry average. Our approach is to work with our customers to put in place sustainable solutions. We make every effort to support those who want to pay their mortgage and legal action is an absolute last resort.

There is a clear requirement from the regulatory authorities for all European banks to reduce NPEs further and to do so more quickly. The strategy we presented recently to the market does not assume any change in our proven approach to reducing NPEs. Given evolving regulatory requirements, especially as they relate to NPEs, we keep our approach to the resolution of non-performing loans under review. This is to ensure it remains appropriate in order that we can continue to make real progress in reducing our NPEs, while ensuring we retain the capital needed to deliver our strategy. That strategy is to support loan growth in Ireland, invest in the transformation of our business and deliver returns to our shareholders.

I would like to give an update on the Central Bank of Ireland tracker mortgage examination. The tracker mortgage issue became a key focus of mine shortly after I took up my position as CEO last October. I unreservedly apologised to all impacted on customers for the financial loss and anxiety this issue caused them and their families and do so again today. I set out to make sure we would deal with customers fairly and as quickly as possible. In recent months we have placed a major focus on our redress and compensation process. Today, approximately 99% of all affected customers have received an offer of redress and compensation. Affected customers have been offered redress and compensation of over €137 million, of which approximately 90% or more than €123 million has been paid so far. For the remaining offers, as soon as offer forms are returned to us, payment will be made swiftly. Approximately 1% of customers impacted on have yet to be offered redress and compensation. This equals about 80 accounts, with a redress and compensation amount of €1.1 million, or an average of around €14,000 per account. They are mostly cases in which a customer’s address has changed, including when a customer has moved abroad. There are also some cases in which the customer is deceased, with no contact information on record for their representative or solicitor. The bank is actively attempting to trace all customers or their estates in order that we can makes offers in each outstanding case.

I have provided some context regarding the economy and the economic, demographic and housing demand we will see in Ireland in the coming period. I have highlighted some of the issues our sector and customers face and how we are responding to them. I have outlined the transformation under way at Bank of Ireland, including in our culture, technology and business model. I thank the committee for giving us its time and look forward to our discussion.

I thank Ms McDonagh for her presentation. How much has the Bank of Ireland received from the SBCI for the loan scheme to help SMEs?

Mr. Gavin Kelly

The scheme was opened officially a couple of months ago and we have had very few applications. Based on what was learned last year, the scheme's operation changed. An SME has to apply to the SBCI first to obtain approval; the application then comes through to us. The indications from the SBCI are that it has received a few, but we have had fewer than 20 applications.

AIB has secured €122 million. Is that right?

Mr. Gavin Kelly

I cannot comment on what AIB has done under the scheme.

It is quite surprising that Bank of Ireland-----

Mr. Gavin Kelly

We received a higher allocation. AIB may have been referring to the allocation given, but we have had very few applications.

Ms Francesca McDonagh

We received the largest allocation of banks in Ireland.

Why has the bank received so few applications? Are there barriers that need to be addressed?

Mr. Gavin Kelly

I do not believe so; it is just very early. The scheme was launched in April and customers have to go through the SBCI initially. We have been actively promoting the scheme. We have organised several events around the country with business customers and expect to see applications come through. We had a significant take-up of our entire allocation last year under the agri-scheme that the SBCI had launched. It is still early days.

Does the bank have vacant properties on its books and if so how many?

Ms Francesca McDonagh

The bank does not hold on to property. In March 2018 we had 83 properties in possession. Of these, 77 were vacant and nine were occupied.

Mr. John O'Beirne

As we have told the committee before, when we came into possession of properties, we brought them back to the market as quickly as possible. We have 83, approximately half of which are on the market, with the other 40 or so going through stages of preparation to bring them to it.

Ms McDonagh has said she wants to ensure the digital service is combined with a physical presence and a personal touch in branches and "increasing our full-service branches by more than 160%." There was a time when Bank of Ireland had full service which was cut back such that customers were only able to make certain transactions on certain days and so on. Is this a reversal of that policy?

Ms Francesca McDonagh

It is not a reversal. I have listened to feedback. Since being here I have spent time on the front line listening to feedback from customers and our colleagues. I have listened to many calls with the team in our contact centres. I have read complaints and about concerns our customers and stakeholders may have and I am always looking for ways to improve the service we offer and support the growth of Bank of Ireland's customer satisfaction levels and business. We saw an opportunity in some branches that did not offer a full service and in which one might have had access to the counter only in the morning and there was demand for it in the afternoon. We have expanded that service in response to customer feedback. We work in a dynamic environment and customers' behaviour changes, but people still want value and some of the full service elements. Hence we have increased the number of branches from 61 to 164, an increase of 160% , which is good evidence of our commitment to deliver a better service.

Does Ms McDonagh agree that the policy of customers not being able to speak to a human being in branches but being given access to machines and told to come back the following day or two days later to carry out their transaction was wrong?

Ms Francesca McDonagh

It has never been our policy to turn customers away.

That is what the bank did.

Ms Francesca McDonagh

That is the feedback I have received, but it was not a policy. Every branch has people in it to serve our customers. Some branches are self-service and offer advice only. Some provide a full service. We are getting a better balance between what is and is not a full service and increasing the number on the front line. As well as increasing the number of branches that offer a full service, we have also increased the number of people on the front line by over 100. That is a very tangible example of the commitment we have made to improving customer service on the front line and responding to feedback from our customers.

We would never want to turn a customer away when they need our help.

I certainly welcome that because the drive for digitisation, particularly in rural areas where there is no broadband and there is an elderly population, brings about situations where people might have to travel 25 or 30 miles to get to their nearest branch and then they are told to go away because the service they want is not available on that day. That is absolutely wrong so I welcome that, I hope other banks will take the lead from that and I hope Bank of Ireland will continue to go down that route so that people are not marginalised and socially and economically excluded. I am tired of banks coming in here telling us that they are just responding to the tastes of people and that people want to do everything online when they often do not have the computer skills or broadband to do so. I was really glad to see that in Bank of Ireland's presentation and I urge them to continue that.

Ms Francesca McDonagh

I thank the Senator.

In terms of Bank of Ireland's technology and the technology developments Ms McDonagh talks about within the bank, I welcome that also but Bank of Ireland has had recent ATM and debit card failures. Can she explain to us why that happened?

Ms Francesca McDonagh

First, we undertake around 25 million transactions per month and 99.7% of those will happen exactly on time, according to our service standards and to the satisfaction of our customers. There are occasions where we have had outages. Some of those have been an internal issue that we faced at Bank of Ireland, some have been related to external factors that have impacted all banks - whether it is in a particular country or in Europe. We have had an issue where we had an outage through Visa and we were not the only bank impacted. We could also ask Mr. Kelly to speak in more detail about some of the challenges we have had more recently. We have had very short periods of outage that have impacted on our customers and he can speak to what we have done about them.

Does this happen when the bank moves from one technology platform to another or what is causing it to happen? Has it not happened twice in the past couple of months?

Ms Francesca McDonagh

There have been four incidents in total. One of them related to Visa and it was a sector-wide issue that happened in Europe. Another one was that for one hour and 45 minutes in February we had a bank connectivity issue for certain ATMs. Connectivity was re-established within 50 minutes. The others were intermittent impacts from a Mastercard technical issue which impacted all credit cards, not just ours. This is not related to the changes and improvements we are making in our transformation. It was not as a result of some migration or change that we did. We are very mindful that as we transform our IT system, we need to ensure we do not create any disruption to our customers, but also this underlines the importance of constantly investing in upgrading our technology. A 99.7% success rate is good but I would rather if it was 100%.

People are really concerned because they are travelling abroad and they need to access an ATM to pay for accommodation and all of that. If people are left stranded abroad without access to their money then it can cause real difficulties.

On corporation tax, can it be true that Bank of Ireland will not pay corporation tax until 2036?

Ms Francesca McDonagh

Bank of Ireland already pays and will continue to pay tax to the State. In the financial year of 2017, across all tax headings, including bank levies, the bank paid €259 million to the State and collected further taxes of €812 million on behalf of the State. That includes Irish corporation tax of €31 million in 2017 in companies that were never at a tax loss or where no tax loss allowance had been utilised. We do pay tax, including corporation tax, to the State.

What percentage corporation tax does Bank of Ireland pay?

Ms Francesca McDonagh

I do not have the percentage but we fully operate within the tax legislation and rules in every market in which we operate, including Ireland. The position on deferred taxation applies to us and all companies in Ireland, it is not a bank or Bank of Ireland specific issue. We follow and absolutely comply in spirit and letter with the taxation rules that are set by the Government and policy makers.

How does that compare with Bank of Ireland's operations in Britain because there is a 50% cap there and do they not have a bank levy as well of an 8% corporation surcharge?

Ms Francesca McDonagh

I do not have the breakdown of the taxation that is paid by individual market but for the audience, in terms of the taxation that we pay to the State, we comply with the requirements that are set by the policy makers and we paid corporation tax and total tax of €259 million to the State in 2017.

Does Ms McDonagh think it is fair?

Ms Francesca McDonagh

It is appropriate that we follow the tax regulations and laws that are set by the policy makers and that is what we do.

It is down to Government to change that.

Ms Francesca McDonagh

Banks should not be setting tax legislation for organisations that we operate-----

Ms Francesca McDonagh

We respect the laws and regulations of the countries that we operate in, hence our payment of €259 million to the State in 2017.

I welcome Ms McDonagh and her colleagues. I will start by asking for the witnesses' perspectives on the housing market and what Bank of Ireland's expectations and forecasts are on housing because it has quite a good overview of the market, is dealing with builders and developers on the supply side and dealing with home buyers. We have seen significant house price growth in recent times, so what is Bank of Ireland's assessment of where the property market is going on the residential side?

Ms Francesca McDonagh

I thank the Deputy for the question. Two and a half weeks ago I presented our strategy from now until 2021 to the market. Within that we were very specific about our ambition to support our customers - personal, corporate and small business customers - to be successful. A big part of doing that is by being the leading supporter of house building and home buying in Ireland. We see that as a need for both the customers and companies that we want to support. One of the issues that is facing many of our customers, and no doubt many of the Deputies' constituents, is rising house prices. We see that as driven mainly by a mismatch between supply and demand. Ireland is growing in demographics and in GDP and average household sizes in Ireland are relatively large when compared to the European average because people want to move out and get their own home and renting or purchasing it can be prohibitively expensive. For us, the solution to that is to support companies to construct properties and homes that are appropriate for Irish home buyers or tenants. We see an opportunity to support that need.

Last year we provided 8,000 mortgages to customers wanting to buy a new home or move home. We provided corporate clients with support to build 3,000 homes in Ireland; I mentioned in my opening statement that we also supported 1,700 student beds, which is a challenge, and we are helping 160 construction sites to get built. There is still a gap. We expect that there would be around 40,000 residential units needed per annum to meet demand and last year I believe 15,000 were built. That is still driving an increase in property prices. For us, our role, as the largest lender in Ireland, is to support the companies to build the properties and for the people to move into them with mortgages that are attractive.

Does Ms McDonagh think that supply is coming when that mismatch of 25,000 units of a shortfall year on year is looked at? Supply is increasing but the demand is very strong so does that provide for continuing house price growth for the foreseeable future until supply comes somewhere close to meeting demand?

Ms Francesca McDonagh

I will pass over to Mr. O'Beirne in a second to say more on this. We see the supply-demand mismatch continuing but the gap narrowing over the medium term.

Mr. John O'Beirne

There is much more activity now. There seems to be a step up in house building but it is a challenge to get to the 40,000 units which are needed. There will be constraints, such as with the availability of skilled labour, which will affect the process. On the demand side, the housing market is starting to normalise and we are getting back up to 3% liquidity. It used to be 2% but it is now 2.8% and that is what people deem to be normal. There were 54,000 home purchases and 15,000 home constructions and there has been good progress in simplifying some of the regulations, in particular some of the obligations around house building.

In regard to the mortgage market, Bank of Ireland's core offering is centred on fixed rates and cashbacks. In the table of rates provided, the lowest rate offered by Bank of Ireland is 3%, fixed across a number of loan-to-value bands for between one and five years. In the past few days, Ulster Bank has announced a new, two-year fixed rate of 2.3%, which is 70 basis points lower than Bank of Ireland's cheapest rate. Even taking account of the cashback offering, can Bank of Ireland afford not to respond to what appears to be a significant move by one of the bank's competitors in the mortgage market?

Ms Francesca McDonagh

I will talk broadly about our approach to mortgage pricing and Mr. O'Beirne will talk about the competitive dynamics in the market. Even from before I started as CEO, we have been very focused on a fixed-rate offering for our customers as we think it provides the best offer and gives a level of certainty, particularly in an environment in which interest rates are more likely to increase. Nine out of every ten new mortgages are at a fixed rate, particularly for first-time buyers of whom only 2% look for a standard variable rate. We believe we offer very good value across all loan-to-value ratios and terms between one and five years. Our customers tell us they value the cashback offer and it is a shame to take cash out of the pockets of Irish consumers when they need it most, which is when they move house and need curtains and carpets etc. There is a real value in the cashback offer in this context. Combined with a clear, consistent and simple product offering, supported by a process in which we have invested time and effort to improve it for our customers, we think we have a very attractive offering and our customers must think so too, because our market share has increased from 25% in 2016 to 27% at the end of last year. Our interim reports will be out in the next few weeks so I cannot talk about the latest figures but we have seen growing interest and improvement in our mortgage proposition.

Mr. John O'Beirne

We have a good value, fixed-rate offering over an extended time period. The Ulster Bank offering, at 2.8%, is a good offer but it is only available for two years. We talk to customers and research what they want and they have told us they have two major concerns when applying for a mortgage. One is whether they can get a mortgage, and we approve nearly nine out of ten applications. The other is whether they are going to have a monthly repayment amount that is manageable within their budget. Given the competitive dynamics in the market, last year we moved to simplify our fixed-rate structure so that customers could have the option of fixing for a period that suited them. We will continue to keep all those different items under ongoing review.

We have discussed the cashback issue previously and I have a different view on it. I am not a great fan of cashbacks as I feel they serve to camouflage high mortgage rates and it is very difficult for consumers to weigh up where the best long-term value lies as the picture can be quite confusing. Can the bank provide us with a pro forma, or an anonymised version, of the information it provides to new mortgage customers who take up a cashback offer?

I know that new rules are coming into effect from the Central Bank from January 2019. The Central Bank did a review of mortgage-related advertising recently which had a focus on cashbacks. It looked at 183 different advertisements and found 75% of cases did not conform with the consumer protection code of 2012 and EU consumer mortgage credit agreements. Three quarters of the advertisements had to be either amended or withdrawn because key information was not provided, some of the content was inaccurate and some websites were not up to date. Was Bank of Ireland involved in that? Did it have to amend or withdraw some advertisements relating to these incentives following the Central Bank's review?

Ms Francesca McDonagh

I absolutely agree with the Deputy that simplicity is very important for customers looking at a mortgage. No one buys a mortgage; they buy a home and a mortgage is an enabler. We have fundamentally changed the pricing of our fixed-rate offering to enable the simplicity we want. The rate of 3%, regardless of loan to value, LTV, for between one and five years, is designed to bring simplicity and clarity and ensure there is no confusion in how we market the offer. The rate has reduced by 1.85%, or 38%, since 2015. Our cashback offer, of 2% at drawdown and a further 1% in the five-year anniversary, is very clear.

In the area of advertising, there is always an opportunity to improve and we engaged on this. There was some feedback and we did make some amendments. Mr. O'Beirne may have some specific examples of what was changed. We feel the underlying proposition of 3%, with a 2% cashback, is very clear. The fact that we have increased our market share by focusing on that single proposition, for over 90% of cases but particularly first-time buyers who value it most, gives us feedback that suggests our customers, who vote with their feet, like the offer.

Mr. John O'Beirne

We engaged with the Central Bank on this issue. In relation to some of our advertisements, this was to ensure they complied with the full code by making sure warnings and other things were fully visible. We are working with the industry, through the Banking and Payments Federation Ireland, BPFI, to ensure we meet the various commitments under the new regulation on transparency and changes to the consumer protection code of 2012. We will ensure that customers seeking to switch their mortgage can do so within a particular time.

Did the bank have to amend or withdraw some advertisements relating to these incentives, following the Central Bank review?

Mr. John O'Beirne

I do not believe we had to withdraw any advertisements but we may have had to amend some of our brochureware that was available in branches. I can come back to the committee on that.

Can Mr. O'Beirne also provide anonymised examples of what the bank provides to consumers?

Mr. John O'Beirne

Yes.

I see from the questionnaire that there are still 53,000 mortgage accounts on standard variable rates, SVRs. Given what Ms McDonagh said about nine out of ten new mortgage drawdowns starting on a fixed rate these are, in effect, legacy accounts. The bank's variable rates are high because they are not its core offering, at 3.9%, 4.2% and 4.5%. I am concerned that a lot of the bank's customers are still paying more than they need to. The bank has written to them but can it do more? There is inertia among some mortgage holders and this is frustrating for me and members of the committee. We feel consumers need to do more to get better value for their mortgages.

I imagine Bank of Ireland still has customers with low loan-to-value mortgages who are still stuck in the band greater than 80%, while paying at a rate of 4.5%. I am unsure whether Bank of Ireland has that granularity of detail, but it is a source of frustration. What more can it do to help its customers to get the best value from the mortgage products they are on?

Ms Francesca McDonagh

We have 45,000 owner-occupier customers on standard variable rate mortgages, not the number referred to by Deputy Michael McGrath. It is a little less but still too many. I do not agree that there is inertia. For most people, the mortgage payment each month is the largest outgoing from disposable income. It is the biggest bill and one of the most important payments people make to pay for the roof above their heads. It is also their largest investment.

I do not believe there is inertia. It is our responsibility to be proactive and clear in speaking to customers about alternatives. We include an insert with the annual statement. In addition, this year we have written a letter to customers to make them aware of the alternatives. That has been working. Last year we saw 7,750 accounts move from a variable to a fixed rate. That might have been in response to the letter but also to the advertising and communication we have undertaken consistently on the attractiveness of our fixed-rate offer. In the year to date we have seen the number increase. Some 7,500 customers have moved from a variable to a fixed-rate mortgage. That is because customers see the likelihood of an increase in interest rates that would impact on their variable rate mortgage payments. They see that that is looking more probable; therefore, the fixed rate offering is attractive.

I wish to clarify one point. The figure I quoted was for the number of accounts - 53,000 - whereas the number of customers is 43,600.

Ms Francesca McDonagh

The figure of 53,000 includes buy-to-let mortgages, but the number of owner-occupier mortgages is 45,000. We are talking about the same numbers. In that sense, the Deputy is correct.

In my questions I want to focus on switchers. Typically, 90% of loan-to-value is available to switchers. Does that apply to first-time and non-first-time buyers?

Mr. John O'Beirne

We define a switcher as someone who has an existing mortgage somewhere else and is switching to the bank. For first-time buyers, obviously, it is the first time they are purchasing a house or taking out a mortgage.

The answer I have before me refers to a figure of 90% of loan-to-value. Can a person who wants to switch get a top-up on the amount of money available in the switching process?

Mr. John O'Beirne

Yes, because borrowers switch for many reasons. Sometimes they switch purely to get a better rate or change provider. Sometimes they look for additional money.

I will put the question in another way. For a non-first-time buyer, the Central Bank deems it appropriate that the loan-to-value ratio should be 80%. Is that the case? If I went to Bank of Ireland or Allied Irish Banks and obtained a loan of 80% of loan-to-value and then decided to switch, would I be able to avail of a 90% loan in the switching process?

Mr. John O'Beirne

It would depend on the individual circumstances. The short answer to the Deputy's question is "Yes", if a bank had availability within the macro-prudential lending rules. Let us suppose a customer originally borrowed a loan of 80% of loan-to-value. Let us then suppose that over time, depending on the value of the property and the mortgage, the customer looked to switch. He or she may require additional moneys for other purposes, whether it be house refurbishment works or whatever else. Under the macro-prudential lending rules, banks can provide up to 10% above-----

I am familiar with that. Switching has to take place within the rules and there is no way of circumventing them. Is that the case?

Mr. John O'Beirne

Yes.

I thank Mr. O'Beirne for the clarification. We hear about the volume of lending. A total of 12% of the Bank of Ireland lending business in the first quarter of the year involved switcher mortgages. We have heard the same from the other banks. This money is circulating, but it is not real new money into the economy. When we are looking at the figures from banks for new lending, some of it is inter-lending to other banks.

Mr. John O'Beirne

Yes.

We probably need to consider stripping it out. Obviously, switching is becoming a more dominant feature. It should be and people should be encouraged to do it.

That takes me to my next point. In reality, how would the bank representatives speak to a friend in the pub? Let us suppose a friend has a mortgage with Bank of Ireland. The advice a bank representative would give to a friend over a pint would be to go to Ulster Bank, fix for two years and then come back to Bank of Ireland. Is that right? That is because Ulster Bank will pay €1,500 towards the cost of the legal fees. Over the two years, the customer will pay €2,800 less in interest. The bank representative could then advise the customer to take the family away for a nice holiday with the money saved.

Ms Francesca McDonagh

I shall answer that question. I do have these conversations and the answer when we are having them is "No." It depends on the individual. I am not going around passing on personal advice on people's individual circumstances. Let us suppose I was speaking to someone. In two years we may not necessarily have the same fixed rate offer available. The interest rate environment may change. Many of our customers are attracted to three or five-year arrangements because they pay at 3% for a longer period at a time when interest rates may go up and people really want to have certainty on monthly cashflow and outgoings. Our 3% offer over three and five years with cash back is incredibly attractive.

Is it not the reality that people save currently? If they were to look over the next two years, they would save €2,800 by simply moving to another bank. Moreover, that bank would pay €1,500 towards the cost of legal fees; thus the switching process becomes more advantageous. Why would someone not do so? I do not expect Bank of Ireland to tell its customers that they can take their families on a holiday in two years' time for free because they will save that amount of money in switching. What they should do afterwards is look at what Bank of Ireland and others have offered and decide where to switch next.

Mr. John O'Beirne

It really depends on individual circumstances. There is always the benefit of moving between different prices. Certainly, from a Bank of Ireland perspective, we have always been active in the mortgage market and will continue to be. Let us suppose someone needs to move home. With the fixed rates we are offering, we allow a carrying or transporting of the fixed rate to the mortgage on the next home. We also look to help and work through with customers the different things that may come up. As part of having a long-term mortgage with Bank of Ireland, a customer may look at taking a mortgage break or may wish the bank to provide other services. It is always in the round and depends on individual circumstances.

I hear what Mr. O'Beirne is saying. It is important to note, for anyone listening, that the Central Bank encourages people to switch and not do what the Bank of Ireland representatives are suggesting, that is, staying with the bank because of the relationship. We need to break that cycle and get people to switch and force banks not to charge the high interest rates they charge. The rates are still way above the European average; in some cases. they are double the average rates.

I want to discuss the position on mortgage arrears. It has been identified that approximately one third of those in restructuring arrangements have terms and conditions that will run out, whether they are interest-only or other types of solution. When these clauses come to an end, the mortgage holders will come under serious pressure. This applies to one third of all restructuring arrangements throughout the banking sector. What analysis has Bank of Ireland made as to when the restructuring clauses will come to an end? What analysis has the bank made of a potential rise in the ECB interest rate that is certain to happen at some time? The only question now is whether it will be at the end of this year or sometime in 2019.

Ms Francesca McDonagh

I will say a few words about our philosophy and approach to arrears management and helping customers who are in distress. I will then ask Mr. O'Beirne to talk about the details. We have an arrears history and track record that is four times better than the industry average. Our focus consistently has been on working with individual customers to find solutions, provided that they are willing to repay their mortgages, despite some challenges, and work through solutions on a tailored one to one basis. This has served the bank and customers well. It works for those who are willing and want to pay and find a solution that is sustainable.

Mr. John O'Beirne can talk about restructuring and the longer term as we go forward.

Mr. John O'Beirne

As part of restructuring any mortgage, what one is trying to do is find a process that is sustainable and works for the customer. When we look at the range of forbearance treatments that we have they cover everything from short, to medium to longer term. More and more we are looking to ensure that what is put in place is sustainable for the longer term. I think 91% of all of the forbearance arrangements that we have in place are maintained and held. As interest rate environments arise and as people's environments change, it goes back to the previous discussion, it is something that the bank looks to engage and work on with people.

Okay, we may come back to that in a short while. I now want to deal with the housing market. Deputy McGrath also spoke about it. Ms McDonagh talked about the number of houses that she believes are needed to deal with the demand, which is 40,000 but this varies in the different reports and ranges from 25,000 to 40,000. Perhaps Ms McDonagh can explain the reason that Bank of Ireland is at the upper end.

Is Bank of Ireland doing enough to ensure that finance is available to contractors who want to build houses? The reports that I get are that banks are lending, but only lending to the most safe projects. The project needs to be gold standard before one would get funding from the bank and many projects that should have support from the banks are not being supported at this point in time. There is an issue in terms of non-performing loans, NPLs, that may be a factor. We now have legislation going through the Oireachtas, which in my view should not be needed in the first place if banks were providing the necessary loans. What is the increase in the proportion of lending for house construction that the bank has seen year on year and where do the witnesses see the bank going in the next couple of years to be able to meet the demand for the 40,000 houses that must be built each year?

Ms Francesca McDonagh

I thank Deputy Doherty for his questions. A couple of weeks ago I shared our strategy and its key elements with the market and our investors. The first key element we focused on was growth and increasing our loan book. We have set out an intent to increase our net loan book by 20% between now and 2021 and some 65% of that is expected to be in Ireland. Not all but a big part of that will be mortgages for consumers and home builders construction and also SMEs that are related to the home building sector or industry in some way. We have been very explicit and clear in setting out a growth ambition.

There are two elements that enable this to happen, first the economic environment we operate - we have based our growth on how GDP will continue to increase and grow in Ireland at a slightly lower rate. We also base that growth intent on the credit and risk appetite. We want to make credit available to the corporate sector to build properties that are needed but they have to be within a risk appetite. To lend in a way that is non-sustainable or not to consider the risk parameters appropriately would be bad for this sector in the economy and the individuals concerned. We have been conservative and prudent in the way we have lent to large corporates as well as consumers and that has been evident by our track record in credit risk management. We are not going to change our risk appetite statement and risk appetite in general to lend in a way that would be unsustainable as this would impact on the broader economy. We have been explicit about a €1 billion fund for construction and development, the majority of which is in Ireland and we have set out our growth plan. After ten years of a reduction in lending in Ireland, we see that changing and normal lending beginning again. We put 65% of our lending ambition in Ireland, particularly around construction, home building and home buying.

I hope that gives the Deputy an indication of our intent to support the growth in Ireland in a sustainable way.

Nobody is arguing for any bank to adopt a risk appetite that would not be prudent; I definitely am not. What I am trying to find out is what is prudent from the viewpoint of Bank of Ireland. We have reports this morning in the Irish media that the European Commission is saying that the major domestic economic risk to Ireland is the issue of house supply and house price inflation. We have seen house prices increase by 13% in the past year. Rents are now 22% above the peak rate of 2008. Where do prices have to go? Ms McDonagh talked about the mismatch in supply and demand as 15,000 compared to 40,000. With these fundamentals, how much risk is there in terms of lending to a certain sector? How can that risk be reduced because we have a situation where people are telling us that they cannot get the funding, to the point that the State is introducing legislation to make the State's funding available because there is a view that the banks are not providing the funding to the sector?

Mr. Gavin Kelly

Obviously the construction industry is starting to reform and we have evidence of that from the 15,000 units built last year. We are supporting the building of 3,000 units and we are active on 160 sites across the country. That ranges from large corporate sites down to small infill builds where there are a couple of constructions going on. Typically we would look to fund about 60% of the transaction and I say typically, because each one is unique and we sit down with each customer and work through the cash flows for the site, the plans they have for building. We generally look to make sure that there is a reputable builder and we look to make sure that the relevant planning is in place and the site is what we call "shovel ready", which is making sure that it is ready for construction.

We would expect about 60% debt finance from the bank and the remainder coming from private equity. Each client is dealt with individually, each case is assessed individually against a number of different parameters but as Ms McDonagh said we have €1 billion available and we want to fund construction and housing. The challenge for the market as a whole is that construction must ramp up again. We need more builders, and the building firms need more employees. We will fund when the funding is required to start that construction but we have to be prudent and understand what happened in the past.

Do the witnesses have statistics of how many applications or queries were refused by the bank?

Mr. Gavin Kelly

In general across our entire SME portfolio, we will approve 80%.

I just want the figure for the construction sector.

Mr. Gavin Kelly

I do not have these figures to hand but I can get them for the Deputy.

Will Mr. Kelly get them and send them to the committee secretariat?

I thank Ms McDonagh and her team for the opening statement and the questionnaire.

The housing market is a very important part of what Ireland is looking at but equally it is a very important part of what Bank of Ireland is doing. Ms McDonagh mentioned the 3,000 units and 1,700 places in student accommodation and the work on 160 sites. What else can be done by Bank of Ireland to help to increase supply and do the witnesses see any pitfalls along the way? We obviously had a boom before we had a bust and we do not want a repeat of that activity. Do they see pitfalls or issues ahead in terms of housing?

Ms Francesca McDonagh

We are always very risk aware, not just current risk but looking ahead in terms of early indicators. Our focus is working with our corporate clients in supporting them on the transactions, deals and projects that Mr. Gavin Kelly referenced in a sustainable way. The supply and demand issue is very apparent in terms of the increase in property prices and also in rental prices, but house inflation is beginning to slow. It is still high but it is coming down. One will see that the house price inflation is 8% and there was a reduction in the last quarter. I cannot project whether that will endure but the supply and demand dynamic is beginning to have the effect of some reduction in house price inflation. Prices are still rising but at a slower rate. It is also important to put in context that house prices today are still 30% below the peak and that is a reflection of many things, including macro-prudential rules that are appropriate in limiting lending to a sustainable level.

When we look at an individual's mortgage application, we look at the affordability, at the loan-to-value ratio of the property, at the income multiples and at the credit history of the applicant to ensure we are giving mortgages that are sustainable for the people moving into the properties, and to support corporate clients on projects that make sense. We are the largest lender in Ireland and our purpose is to enable our customers to thrive, be it a big corporate or a first-time buyer, and we do it in a sustainable way. Bank of Ireland has a track record relative to any market average or statistic that demonstrates we consistently do that.

Is there anything else that the bank can do to help improve the supply, or does Ms McDonagh feel the bank is doing everything possible within its remit?

Ms Francesca McDonagh

We can always do more. We are doing a lot of activity around the areas that create uncertainty for customers. Brexit is one of those issues that will make people, especially smaller businesses, defer and delay some investment decisions. We do not have a crystal ball about what will happen with Brexit, but our priority is to focus on giving information, guidance and support to our customers. We have done 26 events around Brexit and what it means for all sorts of sectors. We are in constant contact with our customers and we have invested in more people on the front line. This is not just for retail operations but also for our corporate and business banking to see what more resources we can have out and about on the street, speaking to our customers every day.

Ms McDonagh referred to additional staff on the front line, reducing the hierarchy and making it a simpler structure. There are 265 locations and Ms McDonagh said the number of full service branches was to go from 61 to 164. Is it the case that originally all 265 locations were full service branches, that this dropped down to 61 and is going back up to 164 branches? Is this a fair understanding?

Mr. Gavin Kelly

When we made some changes last year, which were discussed at length at the committee at the time, the changes were made based on what we saw in the market and the changes that were mentioned earlier around digital take-up by customers. It was very important to us on a couple of fronts. One was to protect our footprint in 265 locations across the State, and to make sure we were providing the right services for the community. As part of our change last year, between 800 to 1,000 staff were put out to support communities. The committee will have come across this as it was referenced last year by the Senator. The bank has been out and about supporting the community and running enterprise events in schools right across the country. The remaining staff were in the branch networks.

The changes were made based on what we saw. We had 265 locations and 100 of those are now self-service and advice branches and will remain so. Before we made the change, typically in those branches we would have seen 20 to 30 over the counter transactions per day. A teller has the capacity to handle a lot more transactions than that during the day. As part of the change we moved the teller from inside behind a pane of glass to outside, onto the floor of the branch, to meet the customers' needs and requirements. Some 99% of transactions that happen in branches are lodgements and withdrawals. These transactions can now be done at our self-service machines in the 100 branches and can also be done 24-7 at the external lodgement ATM.

The change referred to by Ms McDonagh earlier was around the middle group of branches, where in approximately 100 branches we close the cash transactions at 12.30 p.m. When we spoke to customers after this change they told us that this was confusing. We got that part wrong so we have changed it and are now extending the opening hours in those branches until 4 p.m. every day. Now it is a simpler model where we have two branch types in the business: 165 branches with the full traditional teller service and the other-----

Is that service available all day every day?

Mr. Gavin Kelly

That is available from 10 a.m. until 4 p.m., Monday to Friday. Some branches open on Saturdays, but I believe this is for appointments to meet customers. In different parts of the State we generally open until 5 p.m.

To clarify, the bank has not made 265 branches cashless. I accept that the word is not "cashless" and that it is automated transactions. The branches that were short-term cash transactions are now offering all-day cash transactions.

Mr. Gavin Kelly

Yes.

I acknowledge that Startlab and the FDI hubs are very good and the Montrose branch, which is my branch, has certainly become a transformed entity compared with what it was. It is certainly used by community groups, students and start-up businesses. It is very good. I have complimented the bank on it before and I will again.

With regard to IT investment, I believe a figure of €900 million was quoted for Bank of Ireland's investment in technology. What will the customer see for that investment? I am not saying we want to see servers and clouds and so on, but how will people interface with this technology? How will it improve the bank's customer service?

Ms Francesca McDonagh

We shared our €900 million investment strategy with the market recently through our investor day. I spoke about deepening and broadening this investment. We deepened it to include other systems also. Previously it was very much focused on our core, but we have included new systems such as our mortgage platform. While price is important, speed of response and clarity is also important for people when they are going through the big decision on buying a home. We have also looked at our various channels. I do not want to have to wait until the call banking, which is a big programme, is done before we become better at some of our mobile applications, including the technology that our customers face into. We are looking to improve our mobile banking proposition during 2019.

At the end of this investment our customers will have a bank that is simpler to engage with and where processes are quicker. There will be absolute clarity, independent of which channel customers choose to engage with us on, and where they do not have to speak to lots of people to get something sorted. We will have a single customer view of every customer across all their products and channels. It will be simple, at the channel of their choice and more efficient. This will also have an impact for our shareholders because of the lower cost of running a better system.

I believe that the use of cheques is nearly gone. What percentage of transactions is still by cheque and do the witnesses see the economy eventually being rid of cheques altogether?

Mr. Gavin Kelly

I agree with the Senator. We see significant reductions in their use. I do not have the exact figures but I will forward them on. Reduction in use has been in the double digit percentages year on year. We still have cheques in the Irish economy and they are still lodged into our machines and across the counter every day. It is still a challenge, as indeed is cash. Despite all the moves towards contactless technology and the increase in card transactions, cash usage in the economy is still high. It is one of the aspects we need to keep looking at to see if we can lower the use. We have started to see it reduce slightly but we have more to go.

When Mr. Richie Boucher was before the committee, I asked him about this and he said that Irish people like to use cash. It was just something we had to get over. Cash transactions are costly and expensive and there are security issues when moving cash around. Is there a policy on this? Is Bank of Ireland trying to get people to move away from cash and more towards contactless transactions and credit or debit cards?

Ms Francesca McDonagh

We want to give our customers choices and options. Many customers, young and older, like the convenience of using contactless transactions and going online, but not every customer will. I have worked in other markets in other banks where they have tried to eradicate cash or cheques. This is done to the exclusion of some customers who will always want to use cash and cheques. Even though we want to offer our customers improved service, the fact that we have increased the full service branches by 160% is a response to specific and strong customer feedback. We are moving with the changing preferences and habits of our customers, younger and older, and we see a very big shift towards digital use. We have no plan, however, to remove cash or cheques if some of our customers continue to use them. This is the reality of the market we serve and we have to respond to that.

I welcome the opening of the cultural centre yesterday. I have not yet been down to it, I must have a look at it. Is it to be given or lent to the State for a number of years? Perhaps Ms McDonagh will outline what is involved there.

Ms Francesca McDonagh

I thank the Senator. The College Green branch will be provided for ten years as a cultural and heritage centre.

It was inaugurated yesterday by President Michael D. Higgins and will open tomorrow with a multi-year Seamus Heaney exhibition which I encourage everyone to attend. It is a fantastic location and free exhibition from 10 a.m. to 4 p.m.

I welcome Ms McDonagh and her staff. Most of the questions I wished to ask have been answered. How many refusals of small and medium enterprises have been referred to the credit review committee?

Ms Francesca McDonagh

I will ask Mr. Kelly to address that question.

Mr. Gavin Kelly

Slightly more than 300 appeals have been made to the committee since it was launched. To put the matter in context, for some years we have received approximately 5,000 applications a month, but only 300 appeals have been made to the committee. I do not have the exact percentage of appeals that have been upheld, but I will revert to the committee in that regard. Approximately half are upheld. Some 300 appeals have been made, but 5,000 applications are received a month.

Approximately 50% of the 300 appeals have been upheld.

Mr. Gavin Kelly

I will revert to the committee with the details.

That is a very small percentage of the overall number of applications.

Mr. Gavin Kelly

It is very small in the context of the overall number of applications.

Is there a need for the credit review committee?

Mr. Gavin Kelly

It provides a service. It is an outlet to which customers may go if they wish to challenge a refusal. There has not been much usage of the committee by the customers with whom we deal on a day-to-day basis.

On mortgages, all present know that there is a significant housing problem which will be difficult to solve. Has the bank considered offering 40 to 50-year mortgages?

Ms Francesca McDonagh

We consistently examine our product offering to see if we can offer innovation and longer term mortgages. We recently considered the issue in terms of product innovation. We announce changes when they are made. We considered how such mortgages could be structured, if they were sustainable and in the best interests of our customers and shareholders. On average, our customers maintain a mortgage for approximately 30 years. Longer term mortgages are considered regularly in terms of innovation and product development, particularly as demographics change.

The longest mortgage currently available from Bank of Ireland is repayable over 30 years.

Mr. John O'Beirne

We are considering bringing forward a 35-year mortgage, but 30 years is the longest currently available.

There have been huge changes in employment practices such as five-year contracts, career breaks and so on. As a house will last more than 20 or 30 years, having a 40 or 50-year mortgage would be a good idea. I am delighted that the bank may introduce a 35-year mortgage.

Mr. John O'Beirne

The longest currently available is repayable over 30 years. We are considering whether there is more we could do, while being mindful of how we would manage the mortgage repayment over that extended period and ensure it was suitable and appropriate. Senator Paddy Burke is correct that the nature of work and how people are employed is changing. We must ensure we are abreast of that change and providing the service people seek.

On the cost of housing, particularly in Dublin, which is very expensive, has the bank looked at the cost of developments? New building regulations have increased the cost of building a house, but wages have been relatively static in recent years. People are finding it difficult to get a mortgage to cover the cost of a new home or to meet mortgage repayments. Has the bank considered how the cost of a house or the cost to the consumer could be reduced?

Ms Francesca McDonagh

We look at changing demands in the type of housing bought. There is discussion of having smaller units, less sprawl and a greater concentration and high-rise properties. Obviously, that would have an impact on city planning, transportation and infrastructure. The nature of what people expect from a property is changing. They may have smaller families or want an apartment rather than a house. Our role is to support our corporate clients on projects that make sense, are right for the economy and the subject of demand from residential property buyers. We have an ongoing dialogue with our clients on the right type of housing they will need into the future.

Some developers have recently had problems in securing funding. I am delighted to say Bank of Ireland has recently funded many developers. Mainstream banks do not seem to be funding developers to the same extent as previously; rather, developers are sourcing capital from funds to bankroll developments. In the past some developments were not completed. Individuals with mortgages for houses in such developments were not treated very well and found that they had houses but no proper facilities, roads or infrastructure. Some developers funded through mainstream banks are at a disadvantage because of a higher cost of capital than might be the case if they sourced capital from funds. There is a difficulty in that regard. There has been a big change in how developers are funded. Some banks do not fund them at all.

Mr. Gavin Kelly

I touched on this issue. We sit down with each developer who approaches us. We will fund up to 60% of the cost of a development, depending on the site involved, and the developer will source funds elsewhere to fund the remaining 40%.

A developer may only be able initially to fund 10% of the cost of development of 100 houses and must sell those ten houses before building the next stage of the development. That practice has led to problems in developments not being properly finished.

Mr. Gavin Kelly

Everyone is trying to learn from the past and ensure we will not repeat the mistakes made several years ago. In that regard, we focus on funding good quality developments, understanding them and ensuring planning is in place and all regulations are being met. We get to know each customer and his or her requirements. We fund approximately 60% of the cost of such developments and developers use equity from other sources to fund the remaining 40%. We offer very competitive rates and will continue to so do. That is evidenced by the number of units we currently fund and hope to continue to fund in the coming years.

Must a developer have the equity in cash or may it be in a different form?

Mr. Gavin Kelly

It varies from developer to developer. A developer may receive equity from other sources or have cash from another site. It depends on the developer.

I welcome Ms McDonagh and her colleagues.

On tracker mortgages, I recently received a specific query from a constituent of mine who was deemed by Bank of Ireland not to have been impacted on by the tracker mortgage issue. In 2014, he went to the Financial Services Ombudsman and is now being told that he should go to the Financial Services and Pensions Ombudsman, but the Financial Services and Pensions Ombudsman has stated a decision has already been made on the case. Would it be possible for the case to be heard by the independent appeals group within Bank of Ireland? It is a very quick technical question.

Ms Francesca McDonagh

I thank the Senator for his question. We are very focused on and have made some very positive progress in addressing the tracker mortgage issue. We have identified all Bank of Ireland customers impacted on by it. If the person thinks he was impacted on and went to the Financial Services and Pensions Ombudsman only to be told that-----

The case was heard in 2014 and a decision was made.

Ms Francesca McDonagh

In that case, the person would not necessarily go to the independent appeals panel, which is focused on customers identified in the examination. In conjunction with our regulator, the Central Bank, we have identified all customers impacted on by the tracker mortgage issue.

This may be a matter for further investigation by the committee because there is a lacuna such that a person took a case in 2014, prior to the real tracker issue being identified. There may have been a change in how his claim would have been treated. The committee may wish to approach the Financial Services and Pensions Ombudsman-----

The Senator should provide the details directly for Ms McDonagh.

Ms Francesca McDonagh

As always, we are very happy to look at an individual case.

I thank Ms McDonagh. Regarding the issue of housing supply, Ms McDonagh stated that the bank had currently funded construction of almost 3,000 residential units and 1,700 student accommodation beds. I am interested in the first figure. Are those units based predominantly in Dublin or throughout the country?

Ms Francesca McDonagh

I do not have the geographical breakdown. Many of them would be in Dublin, but our relationships are nationwide and we would see large developments beyond Dublin. They would follow population and demand. In light of Project Ireland 2040, the cities outside Dublin will have larger population increases. We go where the population is.

It is generally agreed that we need to be building approximately 30,000 housing units per annum. The 3,000 figure is 10% of that demand, yet Bank of Ireland is saying that it accounts for 50% of all new lending. Is it fair or unfair to say that that seems to be a relatively low level of lending for the building of houses at a time when we have a major supply issue?

Ms Francesca McDonagh

We would be keen to provide lending and credit for more residential property development. That is a clearly stated part of the strategy that we articulated to the market two and a half years ago. We have been explicit in setting out an intent to increase, including a €2 billion increase in net lending by our corporate banking division in Ireland specifically. That will mainly be in the construction and house building areas.

I am based in Limerick. Anecdotally, many housing developments are being financed by what are termed "the funds". Ms McDonagh can call them what she wants, but they are funds, not banks. I would like to see more housing developments being funded by banks.

Ms Francesca McDonagh

Yes.

It is not healthy for the market that funds are so dominant in the financing of house building. I have seen many developers. It is generally felt that only a handful are being funded by banks. Does Ms McDonagh regard the 40% equity figure that her bank is seeking as conservative? She has not been able to give details about the level of refusals. Has Bank of Ireland a targeted level of residential unit building for 2018? The 3,000 figure is low.

Ms Francesca McDonagh

Those are examples of units that are being constructed today. Our market share of all house building is 20% to 25%. That is what we are supporting.

That is much lower than the bank's overall market share of 50%.

Ms Francesca McDonagh

We would be keen to do more. Hence, we have stated our intention to grow our total loan book by 20% by the end of 2021. Corporate lending into Ireland to support construction is a key driver of that, within risk appetite.

Obviously, it is risk based. Does the bank have a target for residential lending in 2018?

Ms Francesca McDonagh

We do not have a target of a number of units. As we have told the market, we have a target of a 20% increase in lending growth. That breaks down to approximately €2 billion corporate banking in Ireland. We do not break that net growth down further in terms of what is construction or non-construction, but a significant part of it is construction.

One of my concerns is that the mainstream banks are effectively, for want of another term, leaving the building of housing units to the funds. That is unhealthy. I would like to see the banks getting more involved. Bank of Ireland's funding of 3,000 units today is not good enough.

Ms McDonagh referred to how house prices were well off the peak, but when they peaked, they were way above what they should have been. That is why we got into this mess. The only path that will resolve this issue sustainably is to increase supply. I urge the banks in this regard. They are looking to heal their own balance sheets, which is fine, but they must play a part in increasing the number of residential units that are available to first-time buyers. If those units come on stream, it will dampen house prices further.

Ms McDonagh stated that prices were well below peak, but peak was when the top came off the chimney and the whole thing imploded. Does she regard current house prices as being reasonable value? What will be their rate of inflation in the coming years? At what level does that become unsustainable? The Governor of the Central Bank appeared before us recently. He expected inflation to be 5% per annum for the next three years. Anything above that and we would be entering dangerous territory. At least, that is what I understood him to mean. I want to know Ms McDonagh's perspective on this overall matter.

Ms Francesca McDonagh

The Senator has asked a few questions, so let me try to take them in turn. We have 20% to 25% market share in construction. We would like to support more of our clients in building property. I could not agree more with the Senator in that regard. We also provide self-build mortgages to individuals in excess of the 3,000 figure. We agree that a healthy, well-functioning and fairly priced housing market is in everyone's interests - the economy, the Government, individuals and the banks. Obviously, we exist to serve society. Having a property market that is healthy, sustainable and appropriate is in everyone's interests. This has been a key part of the strategy that we have set out. Since I have been in my role, I have been examining the strategy and what we want our growth to be. I have been explicit about that growth.

I have a limited amount of time. We asked the bank to provide details of its proposals on pay and bonuses. On page 19 of the submission supplied, it told us that the group's remuneration committee had recently commenced an engagement process with major shareholders to get their feedback on the adoption of an appropriate executive incentive scheme. Why is that being proposed at this time?

Ms Francesca McDonagh

The Senator is right. The chairman's letter at the AGM referenced the initiation of a conversation with major shareholders about what a more normalised incentive and pay regime could look like. I am on record as saying that I am supportive of normalisation of the banking sector in Ireland. Given the financial crisis ten years ago, I appreciate that many people have strong views about how bankers are rewarded. The Minister for Finance has said that he is in the process of tendering for consultants to undertake a review of bankers' remuneration. We support that, and we would contribute our perspective if asked. Normalisation would allow the sector to attract and retain talent in an appropriate and sustainable way while being mindful that we are not competing against other Irish banks but against international banks that are coming to Ireland. We are also competing with non-banks in Ireland and internationally for talent. I am not just talking about big deal makers but about people who manage risk, security, human resources and the cultural changes we are going through. Normalisation would support that.

What is the percentage of non-performing loans, NPLs, in Bank of Ireland?

Ms Francesca McDonagh

As we provided in our full year results at the end of 2017, our non-performing exposures, NPEs, as a percentage of total loans amounted to 8.3%. Those have reduced significantly in recent years as we-----

What is the target?

Ms Francesca McDonagh

Our intent is to reach below 5%. Other banks in Europe have a hard target set by their regulators. We do not.

How many billions of euro will that figure involve? What will the level of loans be?

Ms Francesca McDonagh

I do not have that information with me.

Does the bank intend to sell loans to funds to achieve that target and over what timescale will that happen? What impact would that have on home and commercial mortgages? Regarding Bank of Ireland's commitment to its branch network, many of its branches have virtually become fully automated. We had a branch-----

I will ask the Senator to conclude. Time is up.

Okay. Ms McDonagh might just deal with the questions on NPLs.

Ms Francesca McDonagh

We have the lowest non-performing, NP, as a percentage of our book of any bank in Ireland. This is an area that we have progressed very well. In working with our customers, we have an objective to get below 5%. We have not set a specific time or target but based on our progress to date, it is not unreasonable to expect us to be below 5% over the next 24 months. Unlike other banks we do not have a set target that has been defined by the regulator but we have made good progress. To date, our approach has consistently been to work with individual customers to find solutions when they face distress and that has proved to be successful. If the regulatory environment changes and if the regulatory capital that is attached to non-performing exposures were to change, we have the responsibility to keep our management of NPEs under review, as one would expect, for us to be dynamic and respond to market change. Our practice to date has not been to sell mortgage portfolios but to manage them individually with our customers.

Does the bank plan to sell mortgage portfolios?

Ms Francesca McDonagh

As I have said before, I have no such plans. If the external regulatory environment were to change and the treatment of how banks allocate capital relative to NPEs were to change, we would obviously need to ensure that our policy was still appropriate and enabled us to have enough capital to support the low growth that members have talked about.

How many cases for repossession does Bank of Ireland have before the courts?

Ms Francesca McDonagh

We have that information if the Chairman will bear with me for a moment.

While Ms McDonagh's colleagues seek that information, I ask her to indicate how many of those cases are also tied up with the tracker mortgage issue.

Ms Francesca McDonagh

The Chairman has asked two questions. More broadly, we will only take an arrears case to court as an absolute last resort. We have proved that we have improved the quality of our loan book, working with customers who have faced challenges. Court is a last resort.

How many cases does the bank have before the courts?

Ms Francesca McDonagh

My colleague will look for the exact number.

I suggest that Ms McDonagh's colleague looks for the answers to my questions.

Ms Francesca McDonagh

Yes.

How many cases does the bank have before the courts? How many of those cases are tied up with the tracker issue? What is the cost to the bank in legal fees of chasing these people?

Ms Francesca McDonagh

On the first question, I will see if we can get the information during the session. In terms of tracker mortgages, if we had customers that were facing problems with payments of their mortgage who were part of a tracker examination, we would have removed them from the legal process. We would not pursue someone in court for arrears-----

That is not the information I have. I am sorry to interrupt Ms McDonagh but I, too, have limited time. As soon as she comes back with the figures I will deal with the rest of my question. On the tracker issue as it relates to Bank of Ireland staff, will Ms McDonagh tell us about the 200 tracker mortgage customers within the bank who have not yet been dealt with?

Ms Francesca McDonagh

I ask Mr. O'Beirne to comment a little more on arrears and the legal issue. We believe we have dealt with and identified all customers who have been impacted by the tracker mortgage issue. We are not having an ongoing discussion with our regulator at this stage on whether additional customers are included. We believe we have included every single customer who has been impacted.

I do not believe that is the case and nor do some of the staff employed in Bank of Ireland. In fact, at a previous meeting, I asked Mr. Liam McLoughlin a question about the position in 2010 and 5,100 people who had been put back on tracker mortgages. He replied that approximately 3,000 Bank of Ireland staff who were entitled to tracker mortgages were put back on tracker mortgages. The mortgage holders who have not been put back on tracker mortgages have complained. They claim that there is one rule for some and another rule for others and different decisions are being made. There are between 150 and 200 of these cases in that cohort of people.

Ms Francesca McDonagh

With respect, I have not previously attended a meeting of this committee with Mr. McLoughlin and the meeting in question would have been before my arrival. When I appeared before the committee in January of this year I spoke of my commitment to address the tracker mortgage issue. Within that, we confirmed that we had increased the number of customers who had been impacted to a total of 9,345, including approximately 6,000 entitlement cases. These cases included some customers who were staff at that time or in the past. The Central Bank is doing further work on the examination, which will not be complete until this work concludes. Currently, however, no cohort of customers are the subject of discussion between Bank of Ireland and the Central Bank in respect of them being excluded.

I did not ask that question. I appreciate that Ms McDonagh has put her best foot forward here and wish both her and the bank well. I have correspondence from Bank of Ireland staff indicating that 200 customers are still contesting that they should be on a tracker rate. It is fine for Ms McDonagh to talk about the Central Bank and so forth. Does she know that there are 200-----

Ms Francesca McDonagh

Yes.

-----dissatisfied customers in the bank? What does she plan to do about it?

Ms Francesca McDonagh

I am mindful of a group of customers. We have included every customer that we-----

Excuse me. I ask members to stop talking. We will have one voice.

Ms Francesca McDonagh

We feel we have identified all impacted customers from the tracker mortgage issue. I do not know if Mr. O'Beirne wants to add anything on that particular group.

There are 200 customers.

Ms Francesca McDonagh

Yes.

Ms McDonagh cannot say the bank has identified them all.

Ms Francesca McDonagh

We did.

There are 200 people who are arguing with the bank about tracker mortgages.

Ms Francesca McDonagh

Mr. O'Beirne may wish to speak about that specific cohort. I am aware of the cases. We have undertaken a very deep review of every single impacted customer. We have looked at this from a customer perspective and lens, not just from a legalistic lens, and we believe that we have captured every single customer who has been impacted by the tracker mortgage issue. There is work that is ongoing by the Central Bank and that conclusion is subject to the Central Bank completing its work.

As far as Ms McDonagh is concerned, the bank has completed its work, yet the 200 cases are still excluded. Is that correct?

Mr. John O'Beirne

In terms of this group, we went through this in great detail when we last appeared. It is a group comprised of current and former staff who, predominately, were never on a tracker. In terms of the impact level and putting them back, we were not in a position to reinstate them on tracker mortgages.

Do the 200 cases have anything to do with the mortgage accounts that were altered with an entry of product switch, which was done on 10 November 2008? That required an IT alteration or manual intervention to prevent the rollover to a tracker. That happened. Has the bank established who authorised that intervention?

Mr. John O'Beirne

I do not believe they are the same issue. I think they are conflating two different things.

It is not that they are conflating them but perhaps I am.

Mr. John O'Beirne

Yes, my apologies. One of those was that mortgages would roll in terms of what their roll rate would go to. The second was in respect of a small group of staff accounts where the staff felt there was an entitlement to go back to a staff tracker. I do not think they are one and the same issue but I will take away the specifics and confirm that point.

The staff who were compensated signed the exact same document as the people who were impacted or believe they are impacted, but they were differentiated because of the rate they were on prior to entering the two-year fixed rate.

Mr. John O'Beirne

Yes.

The bank then informed others that they would be entitled to roll over to a tracker. There is evidence of that but the issue has not been sorted.

Mr. John O'Beirne

No, I think it has. They did go back to the rate they were contractually enabled to go back to from their original loan offer letter.

In terms of the correspondence that issued around that time, if a customer was on a tracker and had taken the staff benefit-in-kind, BIK, rate and then the staff tracker rate, they were then entitled to come back to a tracker. If they were never on a tracker in the first instance, they would have signed the same mortgage form of authorisation but it referred them back to their original mortgage.

The bank is denying them the tracker then.

Mr. John O'Beirne

We do not believe they are entitled to it.

The bank does not but they do. They are the bank's customers. With a new direction, I believe those 200 cases should be examined again.

Ms Francesca McDonagh

We have examined them as Mr. O'Beirne said. We do not believe-----

The bank is holding the line.

Ms Francesca McDonagh

We have thrown much energy, resource and dedication at resolving this.

Well the bank should because it caused the mess in the first place.

Ms Francesca McDonagh

I am not asking for recognition. I am just stating a fact. We have been focused on ensuring all customers who should be included are included. We have a total number of 9,345, a segment of which would have been staff. Regarding the scenario the Chairman described where we do not believe they are to be included in an examination, we will wait for the finalisation of the Central Bank's review of the tracker mortgage issue. At the moment, we are not in discussion with the Central Bank about whether we have inadvertently excluded any customers or any cohorts.

We will get into discussion with the Central Bank on that matter.

There are many emails but in this one, the individual states they had evidence of the bank informing them that they would roll to a tracker and on the system it could be seen where the fixed product was amended mid-term. Is that the same issue in the context of the product switch done on 10 November 2008? Who authorised that?

Mr. John O'Beirne

I do not know who authorised it at the time.

That is funny because the people familiar with it know.

Mr. John O'Beirne

I do not.

Would Mr. O'Beirne not want to make himself aware of who authorised it?

Mr. John O'Beirne

We are working through that piece to ensure we have the full understanding of all those movements and types. They are slightly different issues. Mortgages were originally set up in one way and then, after the withdrawal of trackers, they rolled back to a standard variable rate because a tracker rate was no longer available. Through the course of this review, that is where we have deemed the customers were impacted and have included them in the tracker redress programme.

Ms Francesca McDonagh

If there are individual cases where customers feel they have not been fairly treated, we would be more than happy to take them away and look at them again.

My problem is this. Ms McDonagh presented a description of her bank. I accept she cannot touch on everything. However, the people who write these letters to the committee are members of staff of the bank. They kindly ask us to raise the issue but say that because they are current staff members, they wish to keep their details confidential as they are mindful how it may affect their career and job progression in the bank. Earlier Ms McDonagh spoke about culture. There should be a culture in the bank where no one feels threatened about coming forward. These people, as of 8 June, feel threatened.

Ms Francesca McDonagh

I agree that people should be able to speak up with absolute confidence. That is why, as chief executive officer, I have sponsored a code of conduct relating to how we treat our customers, the conduct we exhibit, how we show respect and courtesy to our colleagues and how we ensure compliance from a legal and regulatory perspective. With our code of conduct, we have a defined speak-up culture where people can raise concerns, whether anonymous or not. I would look at those cases, regardless of whether they are anonymous, with the same lens to see if we are doing the right thing. We believe to date we have done the right thing by including the 9,345 customers in the tracker examination. I would be happy to take those cases away and have a look at them.

It is always the ones on the margins or who have not got resolutions who come to us.

Ms Francesca McDonagh

I understand that. There will always be some individuals who will feel frustrated by this and I am happy to look at them individually.

Another matter is the quality of the documentation regarding some of these cases on the margins. It is clear to me from reading some of the documentation that there are issues around it. The bank refused the person in question the tracker mortgage. She was then contacted and told she should not have got that letter as the bank was still examining the matter. The bank then refused her again. I look at the paperwork and I see clearly where the individual may have signed the three-year fixed paperwork but did not fill out the form. The bank tells us that the second page of this document is missing. At the end of it, however, one can clearly see that the tracker-variable option has been ticked. It has taken years for this person to get this information from the bank. She had to go to all sorts of lengths to get it. These may be just quirks in the bank's system but they affect the lives of people. That is what I am anxious about.

Ms Francesca McDonagh

I have not seen the case to which the Chairman is referring. We will look at that case. Customer documentation has improved. When changing a rate, all of our documents now carry clear warnings in bold text that fixing the rates will result in not being returned to a tracker, for example. That change has been in place since 2010.

There are two documents in conflict.

Ms Francesca McDonagh

I have not seen them.

I did send them but I do not expect Ms McDonagh to read everything. The fact of the matter is that this case exists and it is similar to others. These are not constituents of mine. These are people who have written to the committee.

To return to my first question, has Ms McDonagh found the information?

Ms Francesca McDonagh

Yes. In terms of legal proceedings, judgments which have been enforced, we would have a total of 15 for buy-to-lets and 72 in the case of primary dwelling houses.

Have many of those have been affected by the tracker issue?

Ms Francesca McDonagh

Under the stop-the-harm guidelines from the Central Bank, we would have removed any customer who had been negatively impacted as a result of the tracker issue from any legal proceedings at this point. Of those 72 and 15 cases, we would have no knowledge of any customer who has been impacted by tracker.

I presume the particular case I mentioned must have slipped through those 72 cases. I sent the details to the bank and I am concerned that the matter is going next to the High Court. I find it astonishing because the kernel of the problem is the tracker issue. What are the legal fees around this?

Ms Francesca McDonagh

To clarify the number of cases, when I last appeared before the committee, there were eight complaints which the Chairman shared with me and there were a further five raised by members, bringing the total to 13. Nine of those 13 are now closed but four are the subject of legal proceedings. The case to which the Chairman referred may be one of them. We do not believe we would put a customer through legal proceedings because of the tracker issue. We have not gone to court on tracker mortgage issues which have been identified under the examination in the nine months I have been involved.

The message Ms McDonagh gives about how her bank treats customers and their importance does not carry through to the bank's legal representatives in the courts who show ruthlessness and an uncaring attitude to the bank's customers.

I suggest there is a need to review some of the cases that are before the courts because this issue is throwing good money after bad and damaging people's lives. I use those words carefully but I believe in them. There is a ruthlessness and an uncaring attitude on their part because they have legal protection stacked up on their side. This is funded by Bank of Ireland and I believe this is not doing the bank a service. I ask the witnesses to review these cases and will give the details to them immediately after the meeting.

I have a couple of quick questions. Are the bank's plans to re-enter the broker market proceeding?

Ms Francesca McDonagh

Yes. We have announced an intention to enter the mortgage broker market in the second half of this year. Those plans are proceeding. We will enter slowly at first. We are going to be prudent and appropriate in building up what will be a new channel for us after many years of not being in the broker market.

Will this complement Bank of Ireland's branch network or will it be focused on areas where it does not have a branch?

Ms Francesca McDonagh

We have not yet defined the details of the proposition. Once we get closer to launching it, we will be communicating it to our customers. I do not know if Mr. O'Beirne wants to add to that.

I wish to ask about the bank's new strategic plan. I note it held an investor day in London last month. Bank of Ireland is targeting quite significant reductions in its cost base, reducing to €1.7 billion by 2021. The bank is investing €250 million to, as the plan describes, "broaden the extent of transformation to deliver business model benefits and accelerate the reduction in [its] cost base". It has been widely reported that this will mean job losses, particularly at middle management levels. Can Ms McDonagh set out the bank's plans in this regard? I ask her to start by confirming the bank's current employee headcount. How many of those are in Ireland, and what has the bank publicly confirmed, if anything, about planned redundancies and job losses?

Ms Francesca McDonagh

Bank of Ireland Group's current headcount is 10,650. Approximately 85% of that is in Ireland. I do not have a specific breakdown, but the figure is approximately in that range. The Deputy is absolutely correct in that at the investor day two and a half weeks ago, we set out some key messages. We talked about loan growth and reshaping our UK business, and we talked about transformation and a cost reduction to get to a total cost base of €1.7 billion by 2021. In order to get there we do not have any headcount reduction targets that have been agreed internally; therefore they have not been shared externally. We will reduce our costs in a number of ways. One way is by improving our efficiency through improving the end-to-end journey to customers, digitising more of our business and changing how we are organised. We are doing that already by making the bank a simpler organisation. We also will be changing the contractors or suppliers we pay externally and renegotiating to get better value out of those relationships.

What percentage reduction in Bank of Ireland's cost base will be achieved by getting it down to €1.7 billion by 2021? What is the comparable current figure?

Ms Francesca McDonagh

The reduction will be from about €1.9 billion to €1.7 billion.

What percentage of Bank of Ireland's cost base is accounted for by staff costs, that is, salaries?

Ms Francesca McDonagh

I cannot give the Deputy an exact number but it is around 65% or 70%. We have fewer people today than we have had in the past. I have gone on record and said that. We are likely to have fewer people in the future than we have today. That can be managed in number of ways. One of the things I did early in my tenure was implement a headcount freeze so that we do not automatically backfill vacancies. That is one way of reducing headcount. If vacancies are in the front line, speaking to and supporting customers and providing services, they are backfilled. With regard to other roles, I am questioning whether we need to recruit for every vacancy. That is one way we have been able to manage our headcount costs that does not necessarily have a negative impact on individuals.

If one does the sums, it is clear it will not be possible to reduce the cost base by the targets the bank has set out without reducing payroll costs. Is Ms McDonagh saying that while she acknowledges the headcount will fall, there is no formal programme to bring that about? Is there a particular target? There are reports about stripping out layers within middle management, bringing senior managers closer to customers and so on-----

Ms Francesca McDonagh

Yes.

-----but Ms McDonagh is not putting figures on any of that.

Ms Francesca McDonagh

I do not have an internal or external target figure for headcount reduction. However, I have said we are likely to have fewer people in the organisation than we currently have despite growing our business in the future. I think every European bank would normally say that because there is an increased move towards efficiency and digitisation and customer behaviour is changing. We will do that in a way that is proactive and constructive and we will work with our people to reduce headcount. As for examples of headcount reduction initiatives that we have taken, the difficult ones are to not necessarily backfill every vacancy. That is an example that has enabled us to reduce some of our headcount costs already.

What is Ms McDonagh's perspective on what is causing the drag on the share price of the bank? It was above €8 in January of this year. It is currently around €6.70. That is a significant fall in share price. To what does Ms McDonagh attribute that?

Ms Francesca McDonagh

My team and I focus on the longer-term intrinsic value of the bank. We have been very explicit about our ambitions for growth driven by improving efficiency. The share price has had some volatility - that is reflective of the sector in general. Share prices in the European banking sector have shown some volatility during the same period.

As such, it is not attributable to anything particular to Bank of Ireland.

Ms Francesca McDonagh

There are obviously changes and volatility today. The broader sector has lost nearly 15% of its value this year. That is a reflection of uncertainty, whether it is around Brexit or international trade. I do not have a comment on what is driving the share price performance or volatility of Bank of Ireland. My focus is not on day-to-day or week-to-week shifts but on building longer-term intrinsic value for the group.

I note we are obliged to finish at 12 noon.

I will be brief. Deputy Michael McGrath has covered a good deal of the cost reduction issues. Ms McDonagh referred to Bank of Ireland's non-performing loan exposure being reduced by 75% in the last several years. How was that done? Was it achieved by restructuring, write-offs or moving people to a different process? How much of it was achieved by write-offs, how much was restructuring and so on?

Ms Francesca McDonagh

That 75% reduction since the peak in impaired loans has been achieved through working with our customers on finding solutions and helping customers in distress. We have not sold any loan book during that period with the exception of one in 2014. That was part of the EU restructuring deal and was for a relatively small amount of about €200 million. We have consistently managed our loan book through working with customers. There has also been the backdrop of an economic recovery, which also has helped many customers to be in a stronger financial position.

Does Ms McDonagh have a breakdown of the reduction between write-offs and restructuring? If all those people were not performing and now they are no longer in that category, what happened?

Ms Francesca McDonagh

We found sustainable forbearance solutions, they self-cured or they found a way to get current with their loan obligations again, either because of the external environment, changes they made or solutions on which we would have worked with them.

I thank Ms McDonagh.

I have a brief question on tracker mortgages. I also wish to raise an issue that I have raised on a number of occasions when the witnesses were before the committee. I refer to the bank's staff and how the tracker mortgages issue is being resolved for them or not resolved as the case may be. Some staff members had a two-year fixed product. In the internal systems of the bank, to which many of them had access, it was clearly stated that they would roll onto a tracker mortgage. This was unilaterally switched on the accounts in November 2008. However, no staff member signed or agreed to that change.

Do the witnesses not believe they have an entitlement to redress and compensation given their understanding of what was available to them, according to the Bank of Ireland computer screens, was that their product would automatically roll on to a two-year tracker mortgage? Does this not come into conflict with the clear statements from the witnesses and the bank of a customer-centric approach in dealing with this issue?

Ms Francesca McDonagh

I thank the Deputy. I answered the Chairman's question on the same topic. I will repeat the point. We have been very dedicated to ensuring that all customers negatively impacted by the tracker mortgage issue have received offers of redress and compensation. We have looked at all cohorts and the Deputy will note from my last appearance here we have included additional customers. We have identified a total of 9,345 customers. We do not believe there are any outstanding customer groups impacted. Further Central Bank of Ireland work is ongoing. The examination will not be complete until that concludes. There is no ongoing discussion between Bank of Ireland and the Central Bank on a disputed or disagreed cohort. We await the conclusions of the Central Bank's work but we do not believe we have not appropriately captured or identified any other groups of customers.

Does Ms McDonagh accept these staff of the bank had two-year fixed mortgages at the time prior to November 2008 and that it was stated on the computer system that they would automatically roll on to a tracker mortgage? Is that a statement of fact or it is disputed by Ms McDonagh and the bank?

Ms Francesca McDonagh

I do not-----

Mr. John O'Beirne

I do not believe there is any dispute on it. I will need to validate and confirm exactly what the roll-to rate for that group was. Once we got to November 2008, trackers were no longer available as a product so they were withdrawn. For any customers who had an entitlement, either through the documentation that was originally put in by the bank or through the enhanced inclusion of additional customers late last November, in terms of the transparency of that documentation, anyone who had that entitlement to return to a tracker has been returned to it.

I just want to go back into this. Let us find out what is disputed. Do the witnesses accept that prior to November 2008, with regard to staff members of the bank who had a two-year fixed mortgage, the internal systems of the bank that staff members had access to stated they would automatically roll on to a tracker? We can accept that as a factual position at that time.

Mr. John O'Beirne

I think we can but I will clarify it because the only people who would have had access to that would have worked within the mortgage operations service centre. The way the documentation was always framed was that one's mortgage would roll back to the available rate of the day at that point. That is how we moved to the point of including the additional customers late last year.

Can the bank provide the information to the committee on what was stated on the internal systems that some members of staff had access to? They are not just relying on that. They also make the point that verbal confirmation from staff mortgages was given at the outset that they would roll onto tracker mortgages. Is it possible for the screenshot or what was said on the computer system to be provided to the committee? It leads me to believe that if that was there, there would have been a reasonable expectation that they were entitled to a tracker mortgage.

Mr. John O'Beirne

We will absolutely be able to provide it to the committee. What one finds with mortgages and other products is they are set up in a variety of ways and the thoroughness and diligence of the review was to try to make sure we identified all customers.

I appreciate that. That is why the document would be helpful.

We have gone through that. We will ask Mr. O'Beirne to ensure we get all of the information.

He is also going to come back to us with the cost of legal fees and who authorised the change on the system. That is a separate question on the products on 10 November 2008.

I want to ask about the staff the bank is taking on. The suggestion was made that possibly older, more mature staff are retiring. I understand they are being replaced by quite a lot of new recruits. What is the average entry pay for a graduate or new recruit with a secondary education? What kind of contracts do people get when they first join the bank?

Ms Francesca McDonagh

We are very committed to recruiting graduates. Typically a graduate starting at the bank would earn between €25,000 and €30,000. In terms of their career, a big part of our competitive advantage is attracting and retaining talent. For new entrants and also for people of different seniority and age at different stages of their career we have a career reward framework. We spend €15 million per annum on providing training, development, upskilling and support for our staff. I cannot be successful in my role if I do not have high-quality and engaged people. I put a huge emphasis on culture. I am conducting a survey for the first time in many years to understand how people feel. I am focused on investing in our people, retaining talent and developing their skills.

Can Ms McDonagh describe the kinds of contracts? Are they getting three-month or six-month contracts? At what point, perhaps after one, two or three years, would somebody get a more permanent contract?

Ms Francesca McDonagh

We have different contract types. We have won industry awards for our graduate programme being one of the best in Ireland. Entry position graduate trainees are permanent employees. On occasion, we recruit people for a shorter period of time to fill a specific project or programme or to fill a temporary vacancy so there is flexibility. In terms of managing our costs and efficiency we have looked at whether the use of short-term contractors, who often have quite high daily rates, is the best use of our resources or whether the role is better done internally. Sometimes we will in-house our contractors to some extent. Sometimes we will develop the skills of our own people to do the jobs we are paying a daily rate contractor to do. We want to give our people sustainable and attractive careers at the bank regardless of whether they come in as new entrants or have been loyal members of staff for 30 or 40 years.

Is Ms McDonagh satisfied that the bank is a living wage employer? As somebody who used to lecture many people who did finance and accountancy degrees, I increasingly encounter people who say they cannot afford to live unless they are living at home, which I think a fair number of people are. They cannot afford to pay rent because of the wages at entry level. I encounter a lot of people like this; some are former students or people I know who are students where I used to work in DIT. Ms McDonagh spoke about career paths but the entry grades do not pay a living wage. Is there a policy to have a living wage for people who work in the bank? As she probably knows, even sharing student accommodation costs €1,000 to €1,200 a month. That kind of rent would absorb a lot of a salary of €25,000 to €30,000.

Ms Francesca McDonagh

We have talked in the committee about the inflation in property prices both in purchasing and renting. I am very aware of current and previous living wage discussions. The living wage is €11.70. We do not have any employee working below that rate at Bank of Ireland. I am very mindful of it. I will clarify and come back to the committee on whether we have a stated policy. I do not have one to hand. I have verified that we do not have anyone earning below the living wage working as an employee of Bank of Ireland.

What about the contractors?

Ms Francesca McDonagh

I will need to confirm that.

I thank Ms McDonagh.

Ms Francesca McDonagh

I am mindful of that challenge. If we do not pay people fairly in an economy that has a positive GDP figure and in which the level of unemployment has decreased, we will have a high attrition rate of good people. That will have a considerable impact on customers and other colleagues. As it is also cost inefficient to have that turnover, I am mindful of the issue. If we have a stated policy, I will confirm its application to shorter term contract workers also.

My other question is-----

Just one more. We are already ten minutes behind time.

I will finish on this point. According to note No. 63, Bank of Ireland has carried forward €1.1 billion in tax losses. That is a significant advantage to the bank which it claims could last until 2035. In most other jurisdictions a minimum effective rate of taxation would be levied. Does the bank have a view on how the tax losses carried forward are working in its favour?

We dealt with that issue earlier. If the Deputy wants to-----

I do not think the committee discussed it. I was listening to the debate in my office.

I do not think the question on a minimum effective rate was discussed.

Ms McDonagh might deal with it.

Ms Francesca McDonagh

The bank complies with the letter and the spirit of the tax regulations and laws in the markets within which we operate. The legislation which applies to the carrying forward of tax losses is not industry specific in Ireland. It is also not specific to Ireland. The position is the same in other markets, including the United Kingdom, Germany and Australia. Some will have time limits. For example, there are 20-year limits in the United States and Canada. My focus is on operating within the rules and requirements set by policy makers in the countries in which Bank of Ireland operates.

I thank Ms McDonagh and her colleagues for attending.

Ms Francesca McDonagh

Thank you, Chairman.

Sitting suspended at 12.12 p.m. and resumed at 12.19 p.m.
Barr
Roinn