AIB boss says strategic defaulters make up 4 per cent of the bank’s overall mortgage book

The chief executive of Allied Irish Banks David Duffy has claimed strategic defaulters make up 4 per cent of the bank’s overall mortgage book.

Mr Duffy made the claim during a meeting yesterday of the Joint Oireachtas Committee on Finance, Public Expenditure and Reform. He also said one in five customers in arrears could afford to pay their mortgages – but were choosing not to do so.

“Strategic defaulters” were described as individuals the bank believes are choosing not to make any repayments in the hope AIB will cut them a deal on their debts, or who are diverting rent from an investment property for other purposes.

He said 2,000 customers in arrears had deposits greater than the amount of their arrears – and as such ought to be in a position to pay.

Mr Duffy said the bank’s engagement with distressed borrowers had increased by about 30 per cent and said it was open to writing down debt for customers who “genuinely” could not afford to pay.

Affordable amount
"In a circumstance where it is clear, regardless of remodelling, that there is a lack of affordability – it just cannot and will not be paid – we try to define an amount that is affordable and the rest becomes a write-off," he said.

The committee was also told the bank had written off €38 million in residential mortgages during the first six months of this year, compared to €55 million for last year.

Mr Duffy said the bank could not write down all mortgages in negative equity as it would cost “significantly more” than the entire capital of the bank.

In the case of buy-to-let mortgages, a quarter of customers have made no repayments in the past six months. Fianna Fáil finance spokesman Michael McGrath said it was therefore “not good enough” the bank had appointed only “a few dozen” rent receivers.

No payment
"You're sitting on in excess of 1,000 buy-to-let properties where no payment has been made in six months," he said. "Many of them presumably are rented out. The landlords are receiving the rent and you've appointed a few dozen rent receivers."

Mr Duffy said: “We would agree it is not good enough. We have focused our energy on the 14,000 we have taken out of arrears. When someone is just taking rental income away from a property, is an important thing to address but it wasn’t on our priority list.”

In terms of cutbacks at the bank, Mr McGrath also queried whether the bank had received correspondence from past executives regarding a request they voluntarily relinquish some of their pension entitlements.

Mr Duffy said they had received “quite a few” responses which included “a significant level of engagement” on the issue but he refused to provide any details as to the number of people who had agreed to the proposal.

Staff salaries
Sinn Féin finance spokesman Pearse Doherty asked Mr Duffy whether any of the bank's 1,200 staff members earning in excess of €100,000 would be subject to a reduction in response to the Mercer report.

“We’re not reducing salaries as we have done that already,” Mr Duffy said. “There were a lot of people across the spectrum of the bank that were entitled to automatic salary increases and those have been cancelled and there will be no more.”

Mr Duffy was asked if the bank had kept documents and tape recordings of conversations between executives in the run-up to the bank guarantee.

He said he didn't know "exactly what was and wasn't recorded" but said anything that was at the bank would be made available to the banking inquiry when it comes into being.

PROFILE: DAVID DUFFY
It's 21 months since David Duffy took over as chief executive of AIB becoming the first outsider to head the organisation since the financial crash of 2008. Born and raised in Dublin, Duffy was educated in Trinity College.

He made his name abroad, notably with Standard Bank International and ING. He held senior roles in Asia, Latin America, Europe and the US for those banks. It was considered quite a coup for the Government to land him for the role of turning around AIB. He is tasked with returning the bank to profitability and trying to get the State a return on its €20 billion-plus bailout.

Duffy installed a new management team and targeted a €350 million reduction in costs. That’s an ambitious 20 per cent of its overall cost base. He even took a pay cut . He’s closed branches and tried to position AIB for online banking, reinvigorated its lending and outlined his determination to get on top of the bank’s arrears problems.

Is he here for the long haul? Time will tell but he's made a brisk enough start to life as a semi-State boss.
CIARÁN HANCOCK