Michael McGrath (Cork South Central, Fianna Fail)
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155. To ask the Minister for Finance if he will consider increasing the bank levy on financial institutions that do not reduce standard variable mortgage rates. [14229/16]

Michael Noonan (Limerick City, Fine Gael)
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As the Deputy is aware, the Programme for Government makes it clear that it is not ethically acceptable for Irish banks to charge excessive interest rates on standard variable rate customers. The Government has committed to take all necessary action to tackle high variable interest rates; including through establishing a new code of conduct for switching mortgage provider, administered by the Central Bank and the development of a new, easy-to-use standardised and dedicated switching form. We will also request the Competition and Consumer Protection Commission to work with the Central Bank to set out the options for the Government in terms of market structure, legislation and regulation to lower the cost of secured mortgage lending and improve the degree of competition and consumer protection. These are Year 1 Actions in the programme.

Central Bank research on the influences on standard Variable Mortgage Pricing in Ireland published last year identified three main reasons for higher rates in Ireland.

First, the pricing of loans needs to reflect credit risks. In Ireland these risks are elevated due to high levels of non-performing loans and the lengthy and uncertain process around collateral recovery. Second, competition is weak. This is not unrelated to credit risks since high credit risk deters new players from entering the market. Third, bank profitability is still constrained by legacy issues. Profitability is essential to ensure banks build up adequate capital buffers to meet increasing regulatory requirements and to withstand future adverse shocks.

I think that it is fair to say that there have been considerable movements in the mortgage offerings of the Irish banks in the last twelve months since my meetings with the banks. As recently as last month, two banks made additional reductions to their mortgage offerings. There has also been media speculation on the entry of another new mortgage provider into the market and the additional competition should help to put further pressure on the existing banks to reduce their rates.

The Financial Institutions (Bank) Levy was introduced for the three-year period 2014 to 2016 in Finance (No.2) Act 2013, with the purpose of enabling the banking sector to contribute to economic recovery. The annual yield of the levy is approximately €150 million. In my Budget 2016 speech last October, I announced the extension of the levy to 2021, with a review to be carried out into the methodology used to calculate the levy.  All taxation measures are considered as part of the annual budgetary process and I will not comment on changes ahead of that consideration.