Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

Banks are commercial organisations and they have to be profitable. What Deputy Paul Murphy is suggesting is that the State would set up a mortgage lender. Credit unions in Ireland can lend but are constrained by regulatory limits on the proportion of their loan books that can be lent out over a long period. Some of them want to invest much more in that side of their business. Some people disagree with that approach but I think it would have some potential. What we are trying to do is deal with the reality that the banks are commercial and that they have to be profitable, which I accept. The question that arises is whether they are abusing their position and whether the rates charged to customers reflect market conditions. I accept that inherent in any variable rate is the fact that the rate falls when conditions are good and when they are less favourable, it increases.

The rates being paid to savers are at rock bottom. The banks have not been slow to cut the returns they are paying to savers but they have been slow to cut the rates they are charging borowers, including not only mortgage holders but SMEs, farmers and so on. The budget announcement of a €150 million fund for farmers to access credit at a rate of 2.95% is a recognition on the part of Government that the rates being charged in Ireland are out of step with reality. I know the banking system is repairing itself, that the banks have a high level of impaired loans, that they did not fair too well in the European Central Bank, ECB, stress tests and that they also have a high percentage of tracker mortgages, which is a reality that cannot be ignored, but there is no fairness in their targeting one cohort of customers, many of whom are trapped. The Minister is correct in saying that for new business there have been improvements. Those improvements must be recognised. The Allied Irish Bank rates are now between 3.1% and 3.5%, depending on LTV, which is an improvement that must be welcomed. AIB has reduced its rates for existing and new customers but other banks have drawn a distinction between what they are doing for their new customers and what they are doing for existing customers and they are being allowed to get away with this. The Central Banking in allowing this, in my view, is not properly fulfilling its consumer protection role.

The reality is that the banks are accessing money at next to 0% and yet they are continuing to charge, in the case of Danske Bank, rates of just under 5%. We are not in this regard speaking about the sub-prime area in respect of which rates of 6% and 7% are common place. We are speaking about mainstream lenders in Ireland charging 4.5% because they can get away with doing so. We are allowing them to get away it and we should not be doing so. I come from a different perspective to Deputy Paul Murphy on this issue in that I would rather that the market resolved this situation but it has had ample time to resolve it and it does not appear it will do so. The banks have known for a couple of years what they need to do. We are only asking them to be fair and reasonable. We will hold them to task. They will be appearing before this committee in the next few weeks and we will be putting all of these questions to them. That is the premise of the Bill from my perspective.