Michael McGrath (Cork South Central, Fianna Fail)

I propose to share my time with Deputies Sean Fleming, Dara Calleary, John Browne and Éamon Ó Cuív, with five minutes for each of the first three Deputies and ten minutes for Deputy Ó Cuív.

The motion covers three main issues: first, the unjustifiably high standard variable interest rate being charged by State-owned Permanent TSB on residential mortgages; second, the ongoing lack of credit for small and medium enterprises and the manner in which the lending performance of the banks is being measured by the Government; and, third, the escalating problem of mortgage arrears. These are fundamental issues affecting ordinary mortgage holders and small and medium-sized businesses throughout the country. I intend to focus my comments on the Permanent TSB standard variable interest rate. My colleagues will cover other issues including the lack of credit for small and medium-sized businesses and the issue of mortgage arrears, although I will touch on these issues as well.

The purpose of raising the issue of the standard variable rate being charged by Permanent TSB on up to 80,000 residential mortgages is to seek to have a blatant anomaly in the mortgage market addressed, an anomaly that affects the daily lives of up to 80,000 of the bank's customers who are currently on the standard variable rate.

We should remember that Permanent TSB is a bank that the people rescued through the State guarantee and subsequently through the recapitalisation of the institution. Thus far, some €2.7 billion of taxpayers' money has gone into the bank to keep it afloat. Given the failure to sell the Irish Life business, it appears inevitable that a further €1.3 billion must go into the bank, resulting in a total of €4 billion of taxpayers' money injected into Permanent TSB.

The standard variable rate charged by Permanent TSB on residential mortgages today is 5.19%. The European Central Bank has reduced the base rate by 3% since June 2007 but Permanent TSB has reduced its standard variable rate by only 0.25% during the same period.

The bank's margin over the ECB rate has gone from 1.44% in June 2007 to 4.19% today. PTSB's rate of 5.19% is 2.15% more than what AIB, another State-owned bank - a pillar bank- currently charges its variable rate customers. In pure financial terms, this discrepancy imposes a massive additional burden on already hard pressed families. Take as an example a person with a mortgage of €250,000, not an exceptional amount in today's terms, over a 25-year period. The interest rate differential between AIB and PTSB gives rise to an additional monthly payment of €300 when compared on a like-for-like basis and using the correct amortization method of calculating mortgage repayments. Over the lifetime of the mortgage, the PTSB customer will repay an additional €90,000 above and beyond what a comparable customer with AIB will pay. When we examine this in the round and in the context of the household charge, the VAT increase, the increases in various other Government taxes and charges, such as motor tax and so on, we see the difference this makes for people already struggling to get by. Every Deputy has received e-mails and telephone calls from customers of PTSB who are adversely affected by the level of the standard variable rate they are currently being charged. We could recount many stories here setting out in painful terms what it means for people to be trapped in a mortgage charging an interest rate of that nature.

I accept there will never be a situation where all banks charge the same interest rate, nor would that be desirable in a competitive market. That is not what we propose. In an attempt to ascertain the thinking behind PTSB's pricing policy, I wrote to the former chief executive of the bank, David Guinane, in January this year. In his response, he highlighted the increased cost of running the bank in recent years and referred to the higher cost of funding and the provisions for lending arrears. He cited all of these as justifications for the extraordinarily high rate being charged on standard variable rate customers.

When we examine this in more detail, particularly in the context of the recent report by the Central Bank on variable mortgage rate pricing in Ireland, some important findings should be noted in this House. The report stated that it appears some lenders are charging higher variable rates to compensate for the losses they are making on their tracker loans. It also noted that one bank's variable rates are significantly lower, while another bank's variable rates are significantly higher than those of its peers, taking account of funding costs, arrears rates and other factors. This clearly nails the idea that PTSB can justify its standard variable rate based purely on the cost of funds argument. In any event, how is it that PTSB can afford to offer new customers getting a standard variable rate a rate of 3.7%, while existing customers are being charged 5.19%? This highlights clearly that the issue is not the cost of funds.

It also should be remembered that the long-term re-financing operation undertaken by the European Central Bank has given financial institutions the opportunity to borrow considerable sums of money for three years at a rate of 1%. While we do not have an exact breakdown of what each bank has taken up, we know Irish banks have availed of considerable amounts of cheap funding through that operation. This should reduce the cost of funding for the banks by a significant amount, thereby potentially eliminating some of the losses they are incurring under tracker mortgages. Even if the banks are making losses on their tracker mortgages, that is no reason for standard variable rate customers to subsidise these rates through the predatory rates on standard variable loans. The same arguments can be made against AIB and the EBS. The standard variable rate customers are not subsidising tracker mortgages to the same extent in those banks as in PTSB.

It is difficult to get an exact figure of the number of PTSB customers on the standard variable rate, but based on a press release issued by the bank in February 2011, it is estimated that up to 80,000 standard variable rate customers are affected. Fixed rate customers are also potentially impacted, because when their fixed rate ends, they will go onto the prevailing variable rate at the time. I have seen a number of examples of cases where this has occurred. When people's term on the fixed rate was expired, they were offered exorbitant fixed rates of 7% or 8% by the bank or the alternative standard variable rate of 5.19%. Not only does this issue affect existing standard variable rate customers, it also affects people on fixed rate mortgages with PTSB and they should take an interest in the issue because it will affect them.

It is important to highlight that what PTSB is doing by charging such a high level of interest on standard variable mortgages may well be self-defeating, as it is driving more and more people into arrears which will ultimately increase the bank's need for recapitalisation, a process that is still ongoing at its parent institution Irish Life and Permanent. The Central Bank has affirmed that high standard variable rates are counter-productive. In its 2011 annual accounts, PTSB's provisions for loan losses are now expected to be approximately €1.4 billion, compared to €420 million in 2010, with almost all of the expected increase attributable to the Irish residential mortgage loan book, due to a number of factors including, a significant increase in the number of PTSB mortgage loan accounts greater than 90 days in arrears at the end of December 2011, at 11.5% of total cases. This compares with an industry average of 9.2%. Therefore, we know for sure the level of arrears being experienced by PTSB customers is higher than the industry average arrears experienced by customers of other banks. I have no doubt the rate being charged by the bank to its standard variable rate customers is a contributory factor in accounting for why more of its customers are experiencing difficulty than those of other banks. In other words, what PTSB is doing is not just putting a huge financial burden on families, its approach may well be counterproductive for the company in that it serves to drive up the level of arrears for which it must account and provide in its annual statements.

The obvious question an outsider might ask is: Why do PTSB customers not move their business elsewhere? If only it was that simple. Unfortunately, the mortgage market in Ireland is dysfunctional and there is a lack of competition. In preparation for this motion, I wrote to all of the banks, Irish and foreign and asked them what their policy was in respect of people seeking to switch their mortgage from another bank to their bank. The responses were lukewarm to say the least. Very few of the institutions concerned said they were open to accepting mortgages switching from another bank. Banks simply do not want to hear of it and that is the evidence on the ground from customers. When they seek to transfer their mortgage from PTSB to another bank to avail of cheaper interest rates, they are not accommodated. This is the harsh reality.

This begs the question as to the response of Government and the Central Bank. Both are certainly aware of the issue. The Central Bank, while it did not name PTSB in a statement on 11 February, was in my view referring to it when it said it was engaging with specific lenders who appear to have standard variable rates set disproportionately high compared with the cost of funds through the Central Bank's existing powers of suasion. While it does not seek additional legislative powers at this time, it is trying to use softer powers such as influencing the bank to bring about a reduction in the rate being charged. To date, that has not worked and the customers of PTSB are paying the price through the level of mortgage repayments they must meet.

I have raised this issue with the Minister for Finance, Deputy Noonan, on countless occasions through parliamentary questions and on the floor of the Dáil. The Minister confirmed to me in a reply in the Dáil in January that he did not raise with the PTSB the issue of the standard variable rate being charged.

We got the stock answer, repeated in an utterly disappointing amendment from the Government which washes its hands of responsibility for this issue and says it has no role in the matter. I might have been able to accept that argument were it not for the fact that last November, when the ECB reduced its base rate by 0.25% the Government, very publicly, hauled AIB, Bank of Ireland and Ulster Bank before the Economic Management Council and insisted that the ECB rate reduction be passed on to the banks' standard variable rate customers. At that time, the Minister of State, Deputy Hayes, said on the media that it was pathetic that the banks were not prepared to pass on the ECB rate reduction. The Government, effectively, pressured banks to pass on a rate reduction. Those banks were already charging considerably less than Permanent TSB for standard variable rate mortgages. The real issue, which we highlighted at the time, was the spread of mortgage rates being charged in the market by all of the banks concerned.

It is not good enough for the Government to say it has no role in this matter. It took on a role last November when AIB was, very publicly, forced to back down and pass on the standard variable rate, which it did, bringing its rate down to 3.04%. That is in marked contrast to the approach the Government is taking in respect of Permanent TSB which is charging more than 2% higher while the Government is taking a hand-off approach and is not being proactive or raising the issue with management, despite the fact that we know the rate being charged is contributing to a higher level of mortgage arrears in that bank.

I do not understand the reluctance of Government to say what it believes should happen, even if it does not have the legislative power to make it happen. What does the Government think about the fact that the bank is charging such a high level of interest? Why abandon the customers of Permanent TSB? Why is there one rule for the customers of AIB and another for the customers of Permanent TSB? Is it because AIB is part of the Government's two pillar banks strategy and Permanent TSB is not?

I welcome the comments of a spokesperson for Permanent TSB reported on this evening's news. The spokesperson said the bank is in intensive discussions with the Department of Finance about the future of the bank and that the outcome of those discussions may be a reduction in the interest rate being charged. I welcome that. I have no doubt the timing of the statement is the result of pressure brought to bear on the issue by this motion. I welcome that.

I also highlight the issue facing customers of EBS who have contacted Members to make the point that although they are now part of a merged institution with AIB they are being charged 4.33% while AIB customers are being charged 3.04%. The Minister, in a press release welcoming the merger, made the point that the two pillar bank strategy would standardise the arrangements in respect of the new AIB-EBS, yet we have an enormous differential.

My colleagues will cover other points and I will revert to them tomorrow evening. In the meantime I call on the Minister and his colleagues to intervene and bring pressure to bear, whether publicly or privately, on the senior management of Permanent TSB to ease the enormous burden imposed on its standard variable rate customers who are being crucified by the mortgage interest rate of 5.19% currently being charged by the bank. I hope the Minister will reply in a constructive way.

See this speech in context