Interest rates for SMEs have come down everywhere in Europe except Ireland, Patrick Honohan says
Interest rates for small and medium sized businesses have come down everywhere in Europe, except Ireland, outgoing Central Bank governor Patrick Honohan has said.
At the Small Firms Association lunch, Mr Honohan, who is due to retire at the end of the month, questioned whether this was as a result of limited competition in the banking sector.
"Interest rates have come down everywhere in the euro area, except Ireland," he said.
And he added: “We could all do with more competition in the banking system."
He also said that criticism that the banks are not passing on European Central Bank interest rate cuts are unfair.
“The banks actually don’t benefit from the ECB lowering interest rates. It doesn’t change the costs of current accounts,” he said.
“It disimproves the interest receipts on tracker mortgages. Although tracker mortgage holders and the government’s finances benefit enormously from the reduction in interest rates from the ECB, the banks have not benefitted. They have actually suffered.”
And in a veiled reference to calls for the Central Bank to do more generally to encourage banks to reduce rates, Mr Honohan said “poking around” wasn’t a good idea.
“We have to have a banking system that works in an efficient way, and poking around at the most politically sensitive issue at any particular moment is not the way to get them working more effectively."
Mr Honohan also said that in the past year, the level of non-performing loans in the SME sector for the five main banks had dropped by just under €5bn, or 33pc.
The recovery in the economy, he said, was credit less, but not jobless. He said that since the middle of 2012, there had been an increase in employment of 130,000, or around 7pc.
However, he said the roughly 6pc growth rate in GDP projected for this year had to be treated “with great care” because of the complexities of the accounting of multinationals.
Earlier, Small Firms Association chairman AJ Noonan said more must be done by the Government to ease the tax burden on business owners.
“To me it is shocking that we have members of Government jumping up and down about taking swathes of people out of the USC net, while at the same time discriminating against the very people who create those jobs,”he said.
He also said the Capital Gains Tax regime is “not fit for purpose”. Budget 2016 allowed for a reduced 20pc rate of tax involving the sale in part or whole of a business up to an overall limit of €1m.
Mr Noonan said the Government should have brought it into line with the UK, which has a 10pc rate.
“This is a baby step, when a giant step was needed,” he said.
“Pure ideological madness, as we lose investors for our companies who need investment.”