TAOISEACH Enda Kenny has expressed his disappointment at certain lenders’ failures to pass on the recent ECB rate cut of 0.25% to their customers.
Bank of Ireland, whom the State owns 15% of, and Ulster Bank are the most high profile of the institutions not to have passed the cut on to customers with Danish-owned National Irish Bank actually increasing their rates.
Responding to queries in the Dáil from Sinn Féin president Gerry Adams on why the government did not do more to force the banks into passing on the cuts, the Taoiseach said: “I said in here last week that if the regulator sought extra regulatory powers from the Government, the Government would respond to him. The regulator has written to me and has said at this time, he does not seek powers to regulate interest rates.
“The Deputy (Gerry Adams) asks me what are we going to do about it. The fact is that the Government called in representatives of the three banks for a serious discussion, in advance of the interest rate reduction issue, about their strategy for growth and lending, their position on access to finance for small and medium enterprises, the capacity to meet targets set out by the two pillar banks of €3 billion each this year, and a number of issues that were of interest to the Government and to the banks.
“Following that, we discussed the question of the interest rate reduction being passed on.
“I welcome the fact that Allied Irish Banks have passed on the reduction in interest rates. I am very disappointed that others have not done so.
“As has been pointed out clearly by the Minister for Finance, the ECB reduced interest rates to stimulate economic activity, to provide an opportunity for further investment, to help people who are in difficulty and not to have banks make a capital increase from it. This is ECB policy and I expected that banks would follow ECB policy.
“The Central Bank has two concerns. First, the standard variable rate contract has operated for decades, during which the reasonable assumption has been established that it would generally attract the cost of funds to the bank. The exercise of the currently heightened market power by some banks in increasing rates for existing SVR borrowers would be an abuse contrary to public policy.
“Second, from the point of view of prudential and consumer regulation, it is possible that the deleterious effect on the mortgage arrears situation, arising from large increases in the SVR, could result in a net worsening of the banks’ prospective profitability, while at the same time adding to the financial difficulty of hard-pressed home owners,” he said.