EBS has undercut rival lenders to announce the lowest standard variable mortgage rate in the Irish market. The society has also introduced a tracker mortgage at the same rate of 3.25 per cent. Dominic Coyle reports.

The initiative accompanied strong results from Ireland's largest remaining building society, showing a 15 per cent rise in profits to €62.6 million before an exceptional gain from the sale of its former headquarters.

Announcing the new standard variable and tracker mortgage rates, EBS chief executive Mr Ted McGovern said the new rates would be available to all customers.

He said the EBS had decided to abandon the industry practice of offering lower initial mortgage rates to new business.

"New mortgage discounts and the practice of barring existing customers from availing of tracker mortgages has, we believe, caused resentment among people," he said.

For savers, the society will introduce a one-year fixed-rate bond open only to members of five years' standing. It will offer an interest rate of 2.75 per cent. Mr McGovern said this was the first of what would be a range of initiatives to reward members.

He said it was tangible evidence of the advantage of being with a mutual that did not have to deliver ever-increasing returns to external shareholders.

The results show that gross lending rose by 18 per cent to €2.457 million, although net interest margins declined to 1.46 per cent in 2003 from 1.61 per cent a year earlier. EBS's loan book grew 21 per cent during the year to €8.48 billion.

Mr McGovern attributed the squeeze on margins to interest-rate compression. The society had passed on in full the European Central Bank's 1.25 percentage point interest rate cuts during the year but, with savings rates so low, a similar cut in these was not feasible. He said EBS margins were, "by design", among the lowest in the industry and warned that margins throughout the sector were likely to narrow in the years ahead.

However, he said the quality of EBS's loan book was strong. Arrears fell again to 0.15 per cent and it cut provisions against bad loans. "Asset quality, as measured under the Central Bank guidelines, has not just been maintained but has actually improved," said Mr McGovern.

Commercial lending grew strongly and accounts for 10 per cent of the loan book. "Significantly, there are strong residential and commercial mortgage pipelines in place at the start of 2004, which are more than 60 per cent higher than the level at the start of 2003," Mr McGovern said.

On savings, business grew by 10 per cent to €5.8 billion in "a difficult year", with investors slow to act on the upturn in equity markets and the continuing low interest rate environment.

The society's cost/income ratio remained steady at 53.2 per cent in 2003, with the underlying ratio falling to 48 per cent.

"We have delivered a healthy set of financial results for 2003 in what was a very competitive business climate," he added.