Tuesday 17 September 2019

Lane's swansong could hit cost of mortgages

Central Bank of Ireland Governor Philip Lane
Central Bank of Ireland Governor Philip Lane

Michael Cogley

Philip Lane's swansong may force banks to charge more for mortgages and other loans, it has been warned.

The Central Bank governor, who will move to a new role as the chief economist at the European Central Bank in June, has called on the Government to introduce measures that would force banks to hold more capital.

In a speech to the UCD school of economics last Tuesday, Professor Lane said that the introduction of the systemic risk buffer (SyRB) would improve the loss-absorbing capacity of the country's banks.

Investec financial analyst Owen Callan warned that the buffer would undoubtedly increase the cost of lending for the country's banks, which already charge the highest rates in Europe for mortgages.

"Regulators are always looking to hit the right balance between a safe system and one that works effectively, but there is no evidence that the banks are getting ahead of themselves with their lending at the moment," Callan told the Sunday Independent.

"The introduction of the buffer will influence the pricing of anything that banks do. While its too early to tell the scale of its impact it will force the banks to keep more capital on their balance sheets."

Callan said that the call for the buffer by Lane, pictured, was “not something that was expected” and that only half of European states use SyRB at the moment. The Investec analyst also said that the introduction of the buffer could lead to an additional 0.2 percentage points on the cost of an Irish mortgage.

The view was echoed by Davy research analyst Diarmaid Sheridan who said: “The ultimate introduction may increase the management of regulatory capital targets.

“As a result, pricing in Ireland will remain structurally more elevated that other European countries,” Sheridan said.

The Central Bank made no comment on the matter.

Irish mortgage-holders typically pay more than €2,500 a year more than their European counterparts.

Average rates here currently stand at 3.04pc, compared to the eurozone’s 1.79pc.

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