Michael Creed (Cork North West, Fine Gael)
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110. To ask the Minister for Finance his plans to tackle lack of competition in the banking and mortgage markets in view of the Central Bank’s retail interest rates for August 2020, which show a big differential between interest rates here and the average EU interest rates; the contact he has had with a bank (details supplied) regarding its continued involvement in the banking market here; and the way in which the State can leverage its shareholding in the banking sector here to maximise competition. [30692/20]

Paschal Donohoe (Dublin Central, Fine Gael)
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I am conscious of the fact that the general level of lending interest rates in Ireland are higher than is the case in many other European countries, though it should also be noted that recent trends indicate that rates have been falling. For example, interest rates on new fixed rate mortgages (excluding renegotiations) have fallen from 4.11% in December 2014 to 2.64% in September of this year.

However, when the full context is considered, it should be noted that Irish loans, particularly Irish mortgages, can have different characteristics from those offered by other EU banks making direct comparison of these rates inconsistent. For example, many Irish banks include incentives such as cash back offers, which reduce the effective Irish mortgage interest rate. Irish mortgages are also not subject to upfront fees typically charged by banks in other EU jurisdictions, and which can result in lower headline rates elsewhere in the EU.

Nevertheless, there are a number of important factors which determine the interest rates charged on Irish mortgages. These include operational costs, certain structural factors as referenced above (such as incentives offered), as well as the fact that pricing will reflect:

- credit risk and capital requirements which in Ireland are elevated due to historical loss experience;

- the level of non-performing loans which is higher in Ireland relative to other European banks (as provisioning and capital requirements are higher for these loans to reflect their higher risk and this in turn results in higher credit and capital costs for the Irish banks);

- there are lower levels of competition in the Irish banking market compared to other jurisdictions (however, it is noted that a new entrant has recently entered the residential mortgage market and that it is offering fixed rate mortgages at competitive interest rates).

However, the Central Bank has a range of particular measures to protect consumers who are taking out a residential mortgage. The consumer protection framework requires lenders to be transparent and fair in all their dealings with borrowers and that borrowers are protected from the beginning to the end of the mortgage life cycle; through protections at the initial marketing/advertising stage, in assessing the affordability and suitability of the mortgage and at a time when borrowers may find themselves in financial difficulties. In particular, the Central Bank introduced of a number of increased protections for variable rate mortgage holders which came into effect in February 2017. The enhanced measures, which are provided for in an Addendum to the Consumer Protection Code 2012, require lenders to explain to borrowers how their variable interest rates have been set, including in the event of an increase. The measures also improve the level of information required to be provided to borrowers on variable rates about other mortgage products their lender provides which could provide savings for the borrower and signpost the borrower to the CCPC’s mortgage switching tool.

The Central Bank also introduced additional changes to the Consumer Protection Code in January 2019 to help consumers make savings on their mortgage repayments, provide additional protections to consumers who are eligible to switch, and facilitate mortgage switching through enhancing the transparency of the mortgage framework.

Ultimately, however, the price lenders charge for their loans is a commercial matter for individual lenders. Nevertheless, I will continue to work with the Central Bank and also engage with lenders to encourage, within a framework which seeks to maintain overall financial stability, greater price and other competition in the mortgage market, both for new and existing borrowers. As noted above, it is, therefore, a welcome development that a new residential mortgage lender has recently entered the market and it will be of benefit to new mortgage borrowers and also to borrowers, in particular to borrowers who may still on a standard variable rate with the lender, who may wish to consider switching to a new lender.

Regarding Ulster Bank and its continued involvement in the Irish banking market, I met with representatives of Ulster Bank on the 21st of October. I outlined that I expected that staff, customers and other stakeholders would be informed promptly about any decisions being made. I also emphasised the importance of Ulster Bank to the Irish financial services market, to the wider economy and to the communities it serves.

In response, Ulster Bank confirmed that the strategic review is ongoing and that no decision has yet been taken. Ulster Bank also confirmed that there is no set timetable for this review and that it is fully aware of the strategically important role that Ulster Bank plays in the provision of financial services to the Irish market.

While I will have further engagement with the bank as the review process continues, I would like to emphasise that I have no role in the review or any commercial decisions arising from it. My officials will nevertheless continue to monitor developments.

In relation to the issue of the State using its shareholding in the banking sector to maximise competition, as the Deputy will be aware, the particular banks in which the State has a shareholding interest remain distinct market entities and they continue to provide an important competitive presence in the savings and loans markets. In support of this overall competitive approach, and in accordance with the commercial independence of those banks as provided for in the Relationship Frameworks agreements with those particular banks and which are legally binding documents that cannot be changed unilaterally, the commercial decision making of each of these institutions is a matter for the boards and management of each of those institutions in the same way as it is for the other banks and lenders operating in the Irish market.