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AIB says €600m a month is being shifted by its savers into higher interest accounts and expects that to accelerate. But it says customers are not pulling savings out of the bank to move to alternative providers despite criticism Irish banks have not passed on the full benefits of higher European Central Bank (ECB) rates.
AIB announced a profit after tax of €1.1bn for the first six months of the year on Friday, up significantly on the same period in 2023 thanks in large measure to a boost in net interest income – the crucial difference between what the bank pays savers and what it charges borrowers.
The bank’s total income increased by 12pc to €2.47bn, made up of net interest income of over €2bn and net fee and commissions of €336m.
The sharp increase in profits across all of the banks since the ECB began hiking official interest rates in 2022 has sparked criticism they’ve failed to pass on gains to savers. The bulk of savings at AIB commands little or no interest because it is held in ‘on-demand’ rather than savings accounts.
AIB chief executive Colin Hunt said savers’ behaviour is changing: “We can see at the moment on the deposit side a continuation through the first half of the year of around €600m a month moving from on-demand to (higher interest) term accounts and I would expect maybe a gentle acceleration of that in the second half of this year.”
He rejected criticism of its savings rates. He said the bank had calibrated its pass through of 10 ECB interest rate hikes in 2022 and 2023, increasing variable mortgage rates just 1.7pc versus the ECB’s combined 4.5pc of hikes, and lifting some savings rates to 3pc.
“We were very measured,” he said.
AIB saw a net inflow of €2bn in savings in the first half of the year, despite competition from digital rivals including Bunq and Revolut offering higher rates.
Commenting on the wider interest rate environment, Mr Hunt said the markets expect rates over the coming years to settle well above the all-time lows seen in the past decade.
He said prices were at an extreme when rates hit zero and moved into negative territory and at an opposite end of the spectrum in their recent peak of 4.75pc.
Once inflation falls below 2pc, in line with the ECB mandate, and a growth trend becomes clear he expects rates “probably above the mid point” of those two poles.
“I think it will start with a two,” he said.
AIB shares fell sharply on Friday despite the bank’s bumper profits, pulled lower by a wider sell off across markets.
