Pressure on banks to cut interest rates may undermine Irish financial sector - European Commission
THE “continued pressure” being placed on banks to cut mortgage interest rates may undermine the stability of Ireland’s financial sector, the European Commission has warned.
In its third report since Ireland exited its bailout, the Commission accepted that the standard variable rate charged to customers is “relatively high”.
But it said that continued pressure on banks to slash rates to customers “may undermine financial sector stability by reducing bank profitability and impact future privatisation prospects”.
Irish banks must be given “sufficient leeway” in setting mortgage interest rates, the Commission concluded.
The Commission’s latest assessment of the performance of the Irish economy, seen by the Independent.ie, has been sent to members of the Oireachtas Finance Committee.
Its warning about placing pressure on banks over interest rates comes amid growing calls for the Government to take action.
Fianna Fáil is tabling a bill this week that would oblige the Central Bank to assess the mortgage market and study banks’ costs against their profit margins.
The Central Bank would then be given a range of direct powers on mortgage rates. These would include directing a lender not to charge a rate which exceeds: a specified maximum rate; a margin above the lender’s cost of funds; a margin above the ECB rate; a proportion, more than one-third, above the average variable interest rate charged generally in the market.
Meanwhile, the Commission also comments on issues such as water, the health service and property tax.
Officials said the resistance towards paying for water charges “remains high”.
And the Commission noted that Irish Water has refused to release the details of payment compliance.
On health, the Commission said “uncertainty” continues to surround the proposed introduction of Universal Health Insurance.
On the wider economy, the Commission noted the economy is “rebounding strongly yet the legacies of the crisis still call for determined policy efforts in public finances and financial sector repair”.