Tuesday 6 December 2016

Wounded bank structure will need more than a few quick patch-ups

It must be acknowledged that high variable rates are a symptom of deeper problems in the system, writes Colm McCarthy

Published 22/05/2016 | 02:30

MORTGAGES: Micheal Martin with his front bench colleagues outside Leinster house. The FF Bill empowering the Central Bank to cap certain mortgage lending rates will please mortgage borrowers but will hardly appeal to the Central Bank, which has not sought these powers. Photo: Gerry Mooneyin
MORTGAGES: Micheal Martin with his front bench colleagues outside Leinster house. The FF Bill empowering the Central Bank to cap certain mortgage lending rates will please mortgage borrowers but will hardly appeal to the Central Bank, which has not sought these powers. Photo: Gerry Mooneyin

Ireland's retail banking system comprises the patched-up remnants of the dysfunctional and swollen structure which arose during the bubble. There were spectacular collapses, every single bank had to be rescued, some remain in majority public ownership, several disappeared and a well-functioning system has yet to re-emerge. As is true in many countries, the banks remain burdened with non-performing loans and there are reservations about balance sheet quality. Customers complain about credit availability and cost and there is an evident lack of competition. There continues to be an over-concentration on housing finance.

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The Fianna Fail Bill empowering the Central Bank to cap certain mortgage lending rates is an understandable response to borrower concerns and may succeed in reaching the statute book. It will please mortgage borrowers but will hardly appeal to the Central Bank which has not sought these powers, may decline to exercise them and cannot be forced to do so.

Variable rates on mortgage loans in Ireland are about 1.5pc higher than the average in eurozone countries, and in some cases the excess is even greater. Banks which owe their survival to the taxpayer are reporting profits, promising to resume dividends and able to afford pay increases and pension fund top-ups. Borrower discontent is hardly a surprise.

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