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

I thank the Deputy for raising this important issue. As he is aware, the statement of Government priorities 2014-16 recognised the need for competition in the banking sector to put pressure on banks operating in Ireland to reduce the interest rates charged. This issue was also discussed in the context of a Private Members' motion brought forward in the House just before Easter. It has also been the subject of a number of recent parliamentary questions.

I met the Governor of the Central Bank, Patrick Honohan, on 2 April to discuss the issue. The Governor provided me with an update on the ongoing work he and his officials were carrying out on the issue of the standard variable rates, SVRs, charged by the lenders. At the meeting we spoke about the fact that the SVRs charged in Ireland were higher than those charged in other euro area countries and had not fallen in line with ECB wholesale rates. The Central Bank will continue to research why this is the case and will publish results shortly. The Governor will update me on progress in due course.

As the Deputy will be aware, it is a commercial matter for each lending institution to determine the rate it charges its customers, depending on a number of factors such as cost of funds and commercial considerations such as competition, risk pricing and the impact on deposit rates. However, the Government expects, as the cost of funding for the banks reduces, this to be reflected in the interest rates charged to both new and existing customers.

As the Deputy will also be aware, the Central Bank has no statutory role in the setting of interest rates by regulated entities, apart from the interest rate cap imposed on the credit union sector in accordance with the provisions of the Credit Union Act 1997 and the requirement to be notified of penalty or surcharge interest imposed in respect of arrears. Nonetheless, as I have said, the issue of regulation of interest rates remains a policy area under active review and has been the subject of recent correspondence between the Department of Finance and the Central Bank. The current position is that the Central Bank does not have new proposals for the additional regulation of interest rates.

The Governor of the Central Bank, in his opening statement to the Oireachtas Joint Committee on Finance, Public Expenditure and Reform last November, stated that in Ireland, as in most advanced economies, it had long been understood tight administrative control over the rates charged by banks would be counterproductive in ensuring a sufficient flow of properly priced credit on a lasting basis. Such control would strongly discourage new entrants when, in fact, ongoing competition in the banking sector will be crucial in ensuring the economy is provided with efficient and cost effective banking services. In this regard, there have been some movements on mortgage interest rates of late by a number of institutions which suggest the market may be entering a new and more competitive phase.

The Central Bank (Supervision and Enforcement) Act 2013 introduced changes to section 149 of the Consumer Credit Act 1995, which regulates fees and charges, in order to attract new entrants to the Irish banking sector. There is some evidence of improvements in the banking sector, with a number of institutions introducing new products and adapting their business models. In the past 12 months there have been a number of new entrants to the Irish mortgage market, bringing additional and welcome competition to the sector. While not an option for all borrowers, those who are in a position to move mortgages should look into their options to do so. The banks must be convinced that they are at risk of losing customers if they persist with SVRs higher than what is available to customers in other banks. The Competition and Consumer Protection Commission's website at consumerhelp.iecontains useful information on the process. It also contains comparisons of mortgage products and information on incentives institutions will give to encourage switching.

As set out in the statement of Government priorities 2014-16, supporting increased competition in the banking sector is essential to put downward pressure on interest rates. Increased competition between existing and new entrants will have the effect of reducing prices to consumers, which in the mortgage sector means reducing the SVR.

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