If you are a regular reader on here you will know that the state-operated National Consumer Agency (NCA)is regarded as one of least favourite institutions in the country, largely because it has sat on its hands for the past three years as take-home pay has been slashed and unemployment has spiralled to over 14%, yet prices in the State have stayed high-and-dry at Celtic Tiger era levels. Back in February this year there was an entry on here criticising the NCA for failing to implement a mortgage calculation product on one of its websites – itsyourmoney.ie as required as part of the EU-approved Bank of Ireland restructuring plan. Back in February, it was Permanent TSB’s decision to raise mortgage interest rates that prompted the entry. The criticism of the NCA is just as relevant today following Bank of Ireland’s announcement of interest rate hikes.
A month ago it was announced that the NCA was to be merged with the Competition Authority, a move that was welcomed on here and which generated hope that moves might be afoot to make much-needed reforms to competitiveness in the country. Eurostat figures show that Ireland is still one of the most expensive countries in Europe with a basket of consumer goods and services being 18% more expensive than average. Yet our incomes are just 2.7% above the average, indicating we have a poorer standard of living as a result of high prices. These Eurostat statistics evidence an obvious change in our circumstances since the collapse of the property/banking sectors in 2008 – prices have doggedly remained at Celtic Tiger era levels and our incomes have reduced with cuts to gross pay, new taxes and unemployment. The NCA’s failings appear obvious in this regard, and that is why the news of the effective abolition of that organisation was welcomed and gave rise to the hope that the Competition Authority might take a robust stance on smashing exorbitant prices in the State. Time will tell.
But meantime, we have current pricing changes to contend with. Bank of Ireland, one of the two pillar banks in the country and which now has a small State-holding of just 15%, announced that it was raising its standard variable mortgage rate by 0.5%, ironically just at the same time as the ECB was indicating that interest rates were to remain flat for the next 18 months and may indeed need to come back down to combat renewed fears about EuroZone debt and economic recovery. Bank of Ireland’s CEO, Richie Boucher announced this week that the bank was to raise its interest rates as it could no longer ignore the increased cost of funding confronting the bank and he further justified the decision by correctly stating the ECB had raised rates by 0.25% in April 2011 and by another 0.25% in July 2011. Except Bank of Ireland has been hiking its standard variable rates for the past 18 months when the ECB was keeping rates flat – in August 2010 with a 0.45% increase and in April 2010 by 0.5%. So standard variable rate mortgage holders have seen their rates jacked up by 1.45% in the past 18 months whilst tracker customers have had rises of 0.5%.
Of course it is obvious that Bank of Ireland’s funding model is still dysfunctional. It is relying on €29bn of cheap central bank funding and it still faces an uphill battle to convince traditional markets to lend to it. Deposits seem to have held steady for the bank in the last six months with overall deposits slipping marginally from €65.443bn in December 2010 to €65.143bn in June 2011 though there was an extra €3bn on deposit by Ireland’s NTMA in June 2011 compared to December so strip that out and deposits fell by 5% in the six months. The bank reported a net loss of €507m for the first six months of 2011 though if you were to listen to the press statements and media reporting you might have thought the loss was a much higher €723m. The difference between the two figures is that one is the total net loss and the other one widely reported is the “underlying loss”. It seemed on here that Bank of Ireland was going out of its way to show the beal bocht, the poor mouth, perhaps to further justify the imminent interest rate hikes.
But the bottom line is Bank of Ireland is raising its interest rates; what’s the big deal? After all if you are a mortgage borrower then you can react to the news by changing lender, can’t you? The European Commission certainly believes you can and when the EC granted approval to the Bank of Ireland restructuring plan in July 2010 (it was published in February 2011), concerns about Bank of Ireland’s dominant position in Irish retail banking were to the fore of the EC’s thinking. As part of the restructuring plan, the NCA was to introduce a mortgage comparison feature on its website by the end of 2010 (yes, eight months ago!) which would facilitate consumers in moving their mortgages if Bank of Ireland got out of line with its competitors which include reasonably healthy competitors like KBC, National Irish Bank and Ulster Bank. What the Commission wanted to avoid was a dominant bank shooting fish in a barrel, and distorting competition in the State.
It should come as no surprise that the NCA has failed on its part to implement the website feature demanded by the Commission; the latest is that it may be implemented after September 2011. Meantime the agency seems to be keen to show it has some utility by foisting itself upon the mess that is the Home Payments Limited debacle, never mind the fact that the NCA has stood by and allowed such unregulated financial institutions operate under its nose since the NCA was established in 2007. The abolition of this waste-of-space agency really can’t come soon enough.
So what now for consumers that might feel aggrieved at shouldering yet more of the rescue cost of Bank of Ireland? Personally I would write to Minister for Finance Michael Noonan (email address is michael.noonan@oireachtas.ie). In addition to a complaint about lack of competition, you might also draw the Minister’s attention to the commitment in the Programme for Government which was to force reforms and cost-cutting in State supported banks so that those banks could absorb a 0.25% increase in rates from the ECB. You might also write to Joaquin Almunia, the European Commissioner responsible for competition and who approved the Bank of Ireland restructuring plan with the conditions which included safeguarding competition (Senor Almunia’s contact details are here). And although the NCA has failed you again, there is nothing to stop you requesting information from alternative mortgage providers inIreland.
NAMA Wine Lake 