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The costly loans for business and home mortgage borrowers won’t automatically fall despite an anticipated sharp fall in demand for new lending during the Covid-19 crisis, the chief executive of Bank of Ireland, Francesca McDonagh has said.
The remarks come as the country’s largest lender by assets (which is 14% owned by the State) posted a loss of € 235m in the first quarter even as the Covid-19 economic crisis had only started to bite and the number of jobs hit by the crisis raced to almost 1.3m.
Ms McDonagh and the CEOs of four other banks, including the bosses of the State’s majority-owned AIB and Permanent TSB, met yesterday with Taoiseach Leo Varadkar, Finance Minister Paschal Donohoe, and Business Minister Heather Humphreys.
Sources said the meeting was an opportunity for “stock taking” and that no specific measures such as the potential for ultra-cheap bank loans to reboot the economy in the next phase of government business supports were discussed.
Bank of Ireland’s model includes assumptions for an unemployment rate of 13.5% this year, as well as taking into account a worst-case assumption that the combined value of its new business and residential mortgage lending could be half the level of its lending in 2019.
Asked if the cost of loans to small firms and mortgage borrowers will now need to tumble to lend into the Irish economy, Ms McDonagh told the that the sharp fall in loan demand won’t lead to an automatic reduction in lending costs. The loans will continue to also reflect the cost of the funds and the risks entailed for the bank, she said.
Central Bank surveys have repeatedly shown that since the last economic crisis of over 10 years ago that Irish banks charge small businesses and home mortgage borrowers among the highest interest rates in the eurozone. Stressing that the lender went into the crisis in good shape, she said that even under the bank’s worst case outcome, Bank of Ireland’s capital reserves remain at a healthy level.
Ms McDonagh said there would be more impairments as the bank waits to monitor customers who restart paying their loans at the end of the three- and six-month deferral periods.
She said the bank was obviously aiming for as many customers as possible to resume normal payments at the end of their payment breaks “whether that is three or six months”. There were no discussions about offering further extensions.
“I am not having conversations right now about extending that to nine,” she said, adding the bank’s focus was to encourage customers to restart paying and to support those who couldn’t summarize payments.
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