Pearse Doherty (Donegal South West, Sinn Fein)
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To ask the Minister for Finance his views on the raising of interest rates by AIB on variable rates mortgages; if he will call on the bank to explain their decision and let them know it is unacceptable. [10748/13]

Michael Noonan (Limerick City, Fine Gael)
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While the Government is acutely aware of the increasing financial stress that some householders 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 board of the institution. At the same time, the Government must ensure that the day-to-day running of these institutions has regard to competition, market conditions and the need to develop stable commercial enterprises to meet the long-term credit needs of households and businesses.

The Deputy will be aware that 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. The 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 EU Commission, the ECB and the IMF.

Neither the Central Bank nor the Department of Finance has a statutory function in respect of interest rate decisions made by individual lending institutions at any particular time. I understand that Allied Irish Banks has not yet announced any increase to the standard variable rate. AIB last increased the standard variable rate in November and that increase brought the rate to 4%, lower than most of the other financial institutions. For example, Bank of Ireland and Permanent TSB have rates of 4.35% and 4.34% respectively.

To fund mortgages the bank must borrow at wholesale rates, which are currently higher than the ECB base rate. The bank must ensure that the rate it lends at is economically sustainable and provides a return for the bank and, ultimately, the State as its shareholder. I understand that the Central Bank pays attention to the effect of any increases in the standard variable rate on mortgage arrears and it would no doubt be concerned if banks were exacerbating their arrears problem and as such impairing their ongoing feasibility by such actions.

Pearse Doherty (Donegal South West, Sinn Fein)
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Tomorrow we will begin to discuss the family home or household tax again. We have already seen the start of the water charges legislation in the House. It was stated earlier in the House that €30 billion of austerity measures have been imposed on the people. Yet perhaps the greatest crisis we are in the middle of - a singular crisis which the Government has not acknowledged - is the crisis of those with mortgages in distress or default. I cannot say it often enough: one in four people are in mortgage distress and 115 additional people fall into that category every day.

The Minister stated that setting rates was a commercial matter for the institution and I understand that. However, it has always been a commercial matter for the institutions but that has not stopped the Minister for Finance, his colleagues and the Taoiseach in the past from banging their fists on the table and demanding that the banks deal with interest rates. That was immediately after they got into government. Why is there a different approach now?

AIB, while not announcing a rate change, has signalled that it plans to increase the rate. Let us be clear: this bank got billions of euro of Irish taxpayers' money. If AIB increases the variable interest rate by 0.25%, it will be the highest lender in the market in terms of interest charged. It is a bank that has increased its interest rate twice in the last quarter of 2012, with two increases of 0.25%. The bank is turning the screw on ordinary people, who are concerned about being unable to pay their mortgages at this stage.

Michael Kitt (Galway East, Fianna Fail)
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A question please, Deputy.

Pearse Doherty (Donegal South West, Sinn Fein)
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These people are really under pressure. Today I read an article in the newspaper to the effect that the Government will facilitate the repossession of homes. This really puts the fear of God up into people, who are concerned about how they will keep a roof over their heads and pay their mortgage bills. It is a completely different approach from what the Government promised in the programme for Government after the election.

Michael Kitt (Galway East, Fianna Fail)
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A question please, Deputy.

Pearse Doherty (Donegal South West, Sinn Fein)
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The Government stated that it would ask the bank to forego a 0.25% increase. Why has that never materialised? Will the Minister call in the banks now, just as he did less than two years ago, and put it to them in the middle of this mortgage crisis that it makes absolutely no sense to increase the rate? I direct the Minster to my original question: what is his view on the bank increasing the rate?

Michael Noonan (Limerick City, Fine Gael)
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As I have said repeatedly, there is a signed agreement between the previous Government and the banks, which we intend to honour, to the effect that there will be no interference with the commercial decisions of any of the banks in which the State has a shareholding or in any other bank. The Deputy would not thank me if I were the type of Minister who would interfere with private commercial decisions of the banks or try to use any leverage as the Minister for Finance to influence the banks one way or another on behalf of particular clients. We cannot run a country in that way. We have seen examples of that previously and in other countries and we are not going there.

What I want to do with the banks is continue to make them profitable. The decision taken this week to abolish the bank guarantee means that the banks will no longer have to pay the levy they were required to pay for the use of the guarantee and that will increase their profitability by approximately €1 billion throughout the sector. That will put the banks in a better position to give a better service to people. However, decisions on how the banks apply their new-found profitability is a matter for them.

AIB is at the lower end of mortgage lending. It was well off the pace previously and was losing money on practically every mortgage it wrote.

Pearse Doherty (Donegal South West, Sinn Fein)
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If AIB proceeds with its plan it will be the highest mortgage lender in the State. All it has to do is increase its rates by 30 basis points and it will be the highest. The Minister for Finance owns this bank on behalf of the Irish people. He says it would be wrong to interfere because that is not the way to run the country but he called the banks into Government Buildings. His Deputies were banging their fists and telling the media they were going to insist on the banks passing on interest rate decreases. In fairness to the banks, they complied. What was good then is good now. It is unpalatable for the tens of thousands of people who are in mortgage distress with AIB or are just about surviving that the Minister will sit idly by while a bank which received €21 billion of the money they have foregone in taxes over the past six years charges the highest interest rates in the market. He should use his influence because it will be disastrous for the economy if AIB is allowed to increase its rates given that we already face an unprecedented crisis with mortgages.

Michael Noonan (Limerick City, Fine Gael)
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I have made my position very clear. The Deputy misused statistics either deliberately or inadvertently. It is totally and blatantly incorrect that one in four Irish people has problems with mortgages.

Pearse Doherty (Donegal South West, Sinn Fein)
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The figure is 23.5% of domestic mortgages.

Michael Noonan (Limerick City, Fine Gael)
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No, the percentage is the percentage of people who have mortgages. More than half the people in the country do not have mortgages. He is putting out the notion that 25% of the Irish nation are under pressure mortgages. It is simply not true.

Pearse Doherty (Donegal South West, Sinn Fein)
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It affects 160,000 families.

Michael Noonan (Limerick City, Fine Gael)
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We are removing the guarantee, which will increase the banks' profitability and we will ask them to further address their cost base because I believe their costs are too high. As the banks normalise they will give a better service to the Irish people but they must make commercial decisions without interference from politicians. If the Deputy is advocating a regime of banking in Ireland in which politicians, whether in or out of office, can influence commercial decisions by banks, he is going straight back to the days we have just left, when a telephone call to certain people would get a loan. We are not going there.