Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

10. To ask the Minister for Finance his views on whether mortgage holders in this State are paying a fair price for their mortgages in view of the record low levels of ECB interest rates. [45946/14]

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

It is clear that interest rates in this State are out of sync with what they should be. The Governor of the Central Bank, Professor Honohan, suggested that at the finance committee meeting last week, and also that he intends to do nothing about it. The Minister's response is that the Government is at arm's length from this and that it is due to commercial decisions by the banks. It is interesting that when the former Minister of State leaves these shores to take up residence in Brussels he has no problem returning here and telling us that the rates are a disgrace compared with the rates in other banks in continental Europe. He continues to lash out at the banks he oversaw up to a couple of months ago. Why can the Minister not have the courage of his convictions and state, as he did in the past, that variable interest rates are out of sync with what is happening across the water and that the variable interest rates in the State-controlled banks, at least, should come down? He should at least say that.

The Minister does not have to introduce legislation, as the Taoiseach threatened at one stage, to provide the Central Bank with this power. He should be able to stand up on behalf of the people who put him in this position and say the rates are out of sync.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The lending institutions in Ireland, including those in which the State has a shareholding, are independent commercial entities. I have no statutory role in whether regulated financial institutions pass on the ECB interest rate or in the mortgage rates they charge. They are commercial matters for each institution. The Central Bank has responsibility for the regulation and supervision of financial institutions in terms of consumer protection and prudential requirements and for ensuring ongoing compliance with applicable statutory obligations. The Central Bank has no statutory role in the setting of interest rates by financial institutions, 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. The mortgage interest rates that financial institutions operating in Ireland charge to customers are determined as a result of commercial decisions by the institutions concerned. This interest rate is determined taking into account a broad range of factors, including ECB base rates, deposit rates, market funding costs, the competitive environment and an institution's overall funding.

The Governor of the Central Bank, Mr. Patrick Honohan, in his opening statement to the Oireachtas Joint Committee on Finance, Public Expenditure and Reform last week, stated that the banks' drive to restore their profitability, combined with the lack of sufficient new competition, has meant that, far from lowering their standard variable rates over the past three years as ECB rates have fallen, they have increased their standard variable rates. He also acknowledged that, until very recently, bank competition has been too weak in Ireland to result in any substantial inroads on rates. The Governor also stated that in most advanced economies, including Ireland, it has long been understood that 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. In this regard, ongoing competition in the banking sector will be crucial in ensuring that the economy is provided with efficient and cost-effective banking services. In this regard, there has been some movement on mortgage interest rates of late by a number of institutions, which suggests that the market may be entering a new and more competitive phase.

Additional information not given on the floor of the House

The Government has taken steps to ensure that the Irish financial market is accessible to any financial institution that is considering establishing itself in Ireland. In seeking to reduce the barriers to entry which are specific to the Irish banking market, section 149 of the Consumer Credit Act, as amended, which provides for the regulation of bank fees and charges, has been disapplied for the first three years in the case of new financial service providers setting up in Ireland. This arrangement was provided for in the Central Bank (Supervision and Enforcement) Act 2013. The imposition of regulation on the interest rates that commercial banks may charge will not assist in the development of competition in the banking sector and I have not seen any reasoned argument for such an imposition.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

There is clearly a lack of competition in the banking sector, and a number of banks are bogged down by loss-making tracker mortgages. Despite what some may think, not all tracker loan books are loss-making. I welcome AIB's move to reduce its variable interest rate. In continental Europe the average variable mortgage interest rate is 2.64%, compared to 4.5% here. We must consider what will happen when the ECB rate begins to increase, as it inevitably will, and how it will affect those who are struggling to pay their mortgages. It is only a matter of time before the rate increases.

We are not living in normal banking times. The State owns 99% of AIB, 99% of Permanent TSB and 15% of Bank of Ireland, and this puts an onus on the Minister to stand up and say the rates are out of line. The Minister had no problem intervening in AIB's share price, which is a dodgy issue for a Minister for Finance who owns the bank. He had no problem warning people that AIB's shares were overvalued and that they should not buy them. At least he should stand up and say the rates applied by banks that we own or in which we have a substantial shareholding are out of line with those in continental Europe and ask them to reduce their rates if they can.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Three years ago, the banks were insolvent and an enormous amount of State funds had to be injected into them. Since then, the banking industry, particularly the banks the Deputy mentioned, have improved and secured their positions. However, the banking system is still in difficulty and is not operating like a mature banking system in a European country. The repair work continues, and they are doing well and providing much of the lending necessary. Competition is the best solution to the problems the Deputy has outlined. Now that there is banking union across the European Community, we encourage banks from abroad to establish branches here to increase competition in the banking sector. This is the only way to drive down interest rates.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

The former Minister of State at the Department of Finance, Brian Hayes, said it was a disgrace. Either he was playing politics or he genuinely believes it. There are people in Fine Gael - maybe even the Minister, or the Minister of State, Deputy Harris, who is sitting beside him - who believe the variable interest rates are a disgrace and need to be reduced in line with the ECB reductions. Could they please find it in themselves to state that they agree with Mr. Hayes's statement that the interest rates are a disgrace? At least say something.

The Minister was correct when he said the banks were insolvent. They were rescued by the Irish people. The reason they are returning to profit is not some magical potion that is being concocted in the headquarters of AIB or Bank of Ireland but the exorbitant rates they are charging, the fact that they have not written off debt for struggling mortgage holders, the increased fees they charge and the fact that they have sacked thousands of workers and closed branches. Given that the banks have returned to profitability, they should be asked to consider reducing their variable interest rates, as the Government did when it first took office, when it was in tune with the Irish people. In the first year of the Government's term, it called the heads of the banks into Government Buildings and spoke to them about this matter, and they responded. Now, the Government has done a Pontius Pilate and washed its hands of it.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I will not comment on remarks made by Members of the European Parliament, including former Minister of State, Brian Hayes. There is no standard interest rate across the European Community from which we vary. There are variations in every country. There are different rates in different countries, depending on circumstances. In our circumstances, as a result of the impairment of the banks and the fact that they were insolvent, we are at the upper end of the spectrum. I hope that competition in the system will drive interest rates down and make the banks more competitive. It would suit the economy and job creation.