DUBLIN (Reuters) - Allied Irish Banks (AIB) (I:ALBK) raised the prospect of cutting the cost of variable rate mortgages on Wednesday amid a public and political backlash over lenders' reluctance to ease the burden on customers as they return to profit.
Ireland's coalition government, under pressure from opposition parties a year ahead of elections, has said it may consider increasing the annual charge it levies on local banks if they do not move to cut rates.
At 4.2 percent, the average cost of variable rate mortgages are far above the euro zone average of 2.47 percent, Irish central bank data show. AIB led the market in cutting rates late last year, trimming its rate to 4.15 percent from 4.4 percent.
Around a third of mortgage holders pay the standard variable rate. Others are on fixed rates while a large proportion track the European Central Bank's record low 0.25 percent interest rate and have become a drag on Irish lenders' profitability.
"If we see the trends continuing, we will be in a position to do something," AIB chief executive David Duffy told a parliamentary committee, pointing to positive momentum in its operating costs, cost of funding and cost of risk.
"If we see them continue, then in the short term we expect to make a rate cut in the next month or two. But we have to be very careful, this bank has a (net interest) margin of 1.6 percent," he added, referring to the recovering measurement of how profitable its lending is.
The bank was also pressed on its dealings with customers in mortgage arrears as the number of homeowners behind in payments for more than two years continue to rise, prompting fears in government that the extremely low rate of repossessions will increase as banks resort to legal action.
AIB's head of the financial solutions Brendan O'Connor said that half of its customers issued with proceedings re-engaged with the bank to try to find an alternative solution, resulting in an adjournment in the court cases.
However he said 7,000 of its customers in arrears for over 720 days were making no payments at all on their mortgages, a figure that represents almost 20 percent of all Irish homeowners in arrears for that length of time, according to the central bank.