Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I want to comment on Deputy Paul Murphy's intervention to the effect that mortgage holders are a soft target in that the banks are recovering their losses elsewhere by excessive charges on mortgage holders. That is effectively the argument the Deputy makes. The letter to which Deputy Paul Murphy and a number of other Deputies, including Deputy Michael McGrath, referred is the Central Bank letter of May 2015 under the heading "Influences on Standard Variable Mortgage Pricing in Ireland". In regard to the Central Bank's view in May 2015, with the permission of the Chairman, I would like to quote a paragraph from that letter as follows:

Nevertheless, the mortgage business as a whole is not profitable for the Irish banks. This is not just because of the emerging loan-losses on the back-book, but also because their profitability is further hampered by low-yielding tracker mortgages originated during the bubble. The ability of the banks to partially compensate for the burden of the trackers by retaining higher spreads on variable rate lending is likely to be transitory; as such spreads will in time encourage entry.

In that regard what the Central Bank is saying is that the banks are moving in a compensatory way but they are doing so within the mortgage books. They are compensating for fixed rate trackers, which are probably showing a loss or very close to a loss, by an extra charge on the variable rate. That is the issue. This is not about lending to SMEs or lending elsewhere. The argument then is the competition argument. In this regard, the Central Bank letter states: "New entrants could charge lower rates without incurring a loss of interest on the back book." New entrants would not have the tracker legacies so they would be in a position to compete. Again, care needs to be applied to ensure that we do not do anything that would discourage new entrants from coming into the market.