Second bank warns of hike in mortgage rates
KBC has become the second bank to warn that new personal insolvency rules could trigger an increase in mortgage interest rates paid by its customers.
The Belgian bank, which has about 10pc of the Irish mortgage market, also said it might be less willing to lend if the new laws made doing so riskier.
The comments came hours after Taoiseach Enda Kenny criticised Bank of Ireland (BoI) for suggesting measures to allow struggling homeowners to write off some debt could increase the rates for other mortgage holders.
BoI boss Richie Boucher had said the bank was looking at pricing in the extra "risk" that would come as a result of the new rules. The rises could apply to the bank's existing variable rate mortgages, as well as rates for new variable and fixed mortgages. Tracker mortgages wouldn't be affected, since they can only be increased when the ECB ups rates.
But Mr Kenny is legally powerless to stop Mr Boucher taking such a step even though the the State has a 15pc stake in the bank. Yesterday, other banking sources admitted their organisations were considering similar moves, though KBC was the only one willing to comment publicly.
In a statement, the bank said it was "actively considering the potential consequences" of the proposed new regime.
The "most important consequence" was that they would lead to higher loan losses, as the bank was forced to take hits on loans it had to write off.
The consequence cited by KBC was that the new measures could increase the amount the bank has to pay to borrow money, since the bank could be deemed less creditworthy by the markets.
"These consequences in turn could, if sufficiently serious, reduce our willingness to lend and/or increase the cost of our loans," the bank added. KBC's boss John Reynolds -- who's also president of the Irish Banking Federation -- has been an outspoken critic of the new rules, previously warning that they could make write offs "the default scenario". The Central Bank declined to comment on whether it would be "prudent" for lenders to increase their interest rates to deal with the risk of higher losses.
In a statement, the Department of Finance said it was "premature to make firm judgments on the impact of the draft legislation on pricing" since the rules were still at draft stage.
The department also stressed that cost of mortgages depended on a "range of factors including borrower circumstances, the housing market, funding costs, operational costs, broad risk assessment and competitive influences".
AIB, Permanent TSB, Ulster Bank, and National Irish Bank all failed to rule out increasing their rates in response to the new rules.