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

While the Government is acutely aware of the increasing financial stress that some households are facing in the current environment, ultimately, the pricing of financial products, including standard variable mortgage interest rates, is a commercial matter for the management and the boards of the institutions concerned. As the Deputy will be aware, the relationship framework with the bank provides that the State will not intervene in the day-to-day operations of the bank or its management decisions. These frameworks are published on the Department of Finance website. I must ensure that the bank is run on a commercial, cost-effective and independent basis to ensure the value of the bank as an asset to the State, as per the memorandum on economic and financial policies agreed with the European Commission, the ECB and the IMF.

Neither the Central Bank nor the Department of Finance has a statutory function with regard to interest rate decisions made by individual lending institutions at any particular time. While this decision by AIB is regrettable, it is strictly a commercial decision by the board of AIB and I understand that the increase brings AIB in line with the market average. The standard variable rates charged by the Irish banks are significantly below the equivalent rates charged by banks in the rest of the euro area, even though many of these banks have far lower funding costs.

It must be remembered that in order to fund mortgages, the bank must borrow at current wholesale rates, which are higher than the ECB base rate, and must ensure that the rate at which it lends is economically sustainable and provides a return for the bank and, ultimately, the State as its shareholder. It would not be fair for 2.1 million taxpayers to subsidise 138,000 owner-occupier mortgages, especially when the vast majority of these mortgage holders can afford to pay their mortgages.

I understand that the Central Bank of Ireland pays attention to the effect of any increases in the standard variable rate on mortgage arrears, and would no doubt be concerned if banks were exacerbating their arrears problem and, as such, impairing their ongoing viability by such actions.

The Government has recently set out targets for banks regarding offers made to customers in arrears. The insolvency service was launched last week and has issued relevant guidelines ahead of the acceptance of applications in the future. I understand from AIB that in the course of quarter one, nearly 8,000 customers who were in arrears were cured out of arrears via a combination of business-as-usual arrears management activity and the completion of permanent restructures and that circa 1,400 split mortgage offers have been made by the bank to its customers.

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