Terence Flanagan (Dublin North East, Independent)
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20. To ask the Minister for Finance his plans to encourage competition in the banking sector to drive down variable mortgage interest rates; and if he will make a statement on the matter. [17381/15]

Michael Noonan (Limerick City, Fine Gael)
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The lending institutions in Ireland - including those in which the State has a significant shareholding - are independent commercial entities. I, as Minister for Finance, have no statutory role in relation to regulated financial institutions setting interest rates. This is a commercial decision for the institutions concerned.

Equally, 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.

The Deputy should be aware that the Governor of the Central Bank, Patrick Honohan, 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 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 when, in fact, 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 have been some movements on mortgage interest rates of late by a number of institutions which suggest that the market may be entering a new and more competitive phase.

Furthermore, 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 model.  In the last 12 months there have been a number of new entrants to the Irish mortgage market bringing additional and welcome competition to this sector.

Nonetheless, the issue of regulation of interest rates remains a policy area under active review. I discussed the issue of mortgage interest rates with the Governor of the Central Bank on 2 April. As a result of this meeting the Governor  is currently reviewing the issue of the standard variable rates charged by the lenders. The Governor should be in a position to present this analysis to me in the coming days. I will then meet the six principal Mortgage Lenders in order to discuss this issue.

A series of reductions in interest rates over a fixed time frame would be acceptable to me and in that context I welcome AIB's announcement of a reduction in interest rates as a good first step. Competition between the banks will be crucial in ensuring that the price that the customers have to pay moves in the right direction.