AIB chief executive Bernard Byrne will tell the Oireachtas finance committee on Thursday that the bank has had to hold additional capital on its balance sheet as a result of its recent history of defaulting borrowers – and that the cost is ultimately borne by customers.
In an opening address sent to the committee in advance of Mr Byrne's appearance, obtained by The Irish Times, Mr Byrne said that 70 per cent of the €1.1 billion of non-performing loans (NPLs) the bank agreed to sell last month – to a group led by US distressed-debt firm Cerberus - were more than five years in arrears. This reflected "a lack of any meaningful engagement and/or debt sustainability," according to the statement.
AIB has committed to the European Central Bank that it will reduce its NPLs ratio from 14 per cent currently to the European Union average of 5 per cent by the end of 2015.
"In reality, all customers who meet their loan repayments are adversely impacted by those who do not pay," Mr Byrne wrote. "The Central Bank of Ireland has observed that a functioning secured lending market has to give a meaning to security – 'if that security is undermined, the costs to all borrows are impacted'."
“Defaulting customers, and indeed the history of defaults, means that we as a bank must hold additional capital, but this inevitable additional cost is borne across all our costumers base for many years.”
Meanwhile, AIB’s EBS unit conceded earlier this week that a further 500 of its customers were caught up in the tracker-mortgage scandal. Mr Byrne will also tell the Oireachtas finance committee that the affected borrows will have their rates rectified by the end of the month and be compensated by the end of September.
“We will also remain ready and open to address any other cases should they emerge,” he will say.
The increase means that AIB’s total number of borrowers identified as having been impacted by the controversy has risen to 11,700. It has pushed the level of acknowledged cases across the industry - mainly involving the country’s five remaining retail banking groups - to 37,600.
