Pearse Doherty (Donegal South West, Sinn Fein)
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Question 29: To ask the Minister for Finance in view of the 0.25% ECB interest rise of April last and in anticipation of the ECB interest rate increase due in the coming week, the way he intends to achieve the Programme for Government to direct any mortgage provider in receipt of State support to present him with a plan of the way in which it intends to cut its costs, over and above existing plans, in a fair manner by a sufficient amount to forego a 25 basis point increase on their variable rate mortgage. [18894/11]

Michael Noonan (Limerick City, Fine Gael)
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Implementation of the goals set out in the programme for Government to which the Deputy refers will be introduced in a measured way and in accordance with the Government's priorities over the period of the programme. The Deputy will be aware that as part of the restructuring and recapitalising plans announced last March, as part of the PCAR and PLAR exercise, the banks are engaging in cost cutting plans which are under way. I refer to the consolidation of the banks around two pillar banks, made up of the merger of Allied Irish Bank and the Educational Building Society, alongside Bank of Ireland. The merger of AIB and the EBS which concluded last week will enable cost savings through shared services and economies of scale. By deleveraging non-core assets, the banks will be better placed to focus on supporting the domestic economy. The effect of these changes will bring about cost reductions which will improve operating margins and permit the banks to better absorb funding costs. The Government remains in consultation with the banks in connection with the more significant parts of the plans, including a significant reduction in employee numbers.

Pearse Doherty (Donegal South West, Sinn Fein)
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We are all aware that the number of mortgage holders in distress is increasing daily. As of March this year, there were 86,271 mortgage holders in distress, which equates to approximately 500 families being subjected to serious mortgage distress every week. We know that 50,000 mortgage holders are more than 12 weeks in arrears. This is the largest increase in the level of mortgage holder distress since the Financial Regulator commenced releasing figures in this regard. New figures to be released this month by the regulator will show the impact of the European Central Bank interest rate increase announced in April. I am aware the banks are deleveraging and reducing their costs. However, there is a clear commitment in the programme for Government to direct any mortgage provider in receipt of State support to present to the Government a plan, over and above existing plans, of how it intends to cut its costs by a sufficient amount to allow it to forgo a 25 basis points increase in its variable mortgage interest rate. There is a good indication that the European Central Bank will again increase the rate later this week. This will be the second announcement and we are expecting more. Is the Minister directing the banks to reduce their costs in order that they will be able to forgo the 0.25% increase? Has he asked any of the relevant banks, as provided for in the programme for Government, to reduce its costs sufficiently so as to ensure the interest rate increase will be absorbed within the bank structures, thus relieving the concern of the 200,000 people concerned about the forthcoming announcement?

Michael Noonan (Limerick City, Fine Gael)
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The code of conduct on mortgage arrears has been substantially revised to implement the recommendations of the mortgage arrears and personal debt expert group which published its final report in November last. It sets out how mortgage lenders must treat borrowers when facing mortgage arrears, with due regard to the fact that each case of mortgage arrears is unique and needs to be considered on its merits. In this context, the Government's economic management council recently asked that further work be carried out to address the situation of over-indebted mortgage holders with a view to identifying a range of responses appropriate to individual circumstances. The work will be undertaken by a group which is chaired by Mr. Declan Keane, an accountant seconded to the Department of Finance, and will report by the end of September.

Pearse Doherty (Donegal South West, Sinn Fein)
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The Minister has not answered my question. It is stated in the programme for Government that the banks will be instructed to forgo the 0.25% interest rate rise. My question on behalf of the 200,000 mortgage holders crippled by mortgage repayments is whether the Minister has instructed the relevant banks to come up with a plan which will enable them to forgo the 0.25% interest rate increase due to be announced this week by the European Central Bank.

Michael Noonan (Limerick City, Fine Gael)
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The banks are being reconstructed. There will be two pillar banks. We will have much smaller banks, as the banks will be deleveraging most of what they have in terms of impaired debts abroad and will be concentrating on the home market. Much smaller banks will require fewer employees. Restructuring of the banks will result in significant savings to the banks which will enable them to offer a more cost effective service to all of their customers.

Pearse Doherty (Donegal South West, Sinn Fein)
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I appreciate that. However, my question relates to the interest rate applicable to mortgages and the banks being instructed to forgo the 0.25% interest rate increase. While I welcome all of the other information provided, have the banks been directed to forgo the 0.25% interest rate hike?

Michael Noonan (Limerick City, Fine Gael)
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The restructuring of the banks has not yet been completed. The process is under way. We hope to have the banks fully recapitalised by the end of July, following which they will be in a position to provide better credit lines for customers. Also, as I stated, there will be redundancy programmes in the banks. When all of this has been done, the cost base of the banks will have been reduced and they will be in a position to offer a more cost effective service to all of their customers, including those with mortgages.