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Irish Life & Permanent offers cash to cut trackers
DUBLIN, April 18 (Reuters) - Irish Life & Permanent is offering customers a 10 percent bonus if they make overpayments on their tracker mortgages, in a bid to cut its losses on funding the loans.
About 60 percent of Irish Life & Permanent's mortgage book tracks interest rates set by the European Central Bank (ECB), which have been at record lows during the financial crisis, while Irish lenders have been unable to obtain cheap funding, having lost deposits and been shut out of debt markets.
'Tracker mortgages have been a huge drain on the group's profit and loss,' David Guinane, chief executive of the bancassurer's banking arm, told Ireland's state broadcaster on Monday.
'We charge an average rate of 2.3 percent on tracker mortgages, and we are paying between 3.5 percent and 4 percent on deposits ... This will alleviate the pain on the profit and loss accounts.'
The ECB raised its rate to 1.25 percent earlier this month, beginning what financial markets expect to be a steady run of hikes, but that is little comfort to Irish banks, which depend on the ECB for funding, meaning any rise in the ECB rate raises their own cost of borrowing.
Irish Life & Permanent's funding situation has been particularly acute, with the highest loan to deposit ratio in the Irish banking sector at the end of last year at 248 percent, compared with an industry average of 180 percent.
Guinance said the overpayment offer would help cut its outstanding tracker mortgages, which were written at the height of the property boom between 2004 and 2008, and meet its target of cutting its assets by 16 billion euros by the end of 2013.
All Irish banks have to shrink their assets as part of an EU-IMF bailout package designed to end the country's banking crisis and wean them off ECB funding.
Irish Life & Permanent's tracker offer will be open to customers who make additional payments of 5,000 euros or multiples thereof until June 17. manent tsb, faces an uncertain future after crunch stress tests last month showed it needed to raise 4 billion euros in additional capital to bulletproof it against future shocks.
The group hopes to raise around 1.1 billion euros from the sale of its flagship Irish Life insurance arm and buying back its subordinated debt at a discount.
The rest of the capital is expected to come from the state.
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