Wednesday 21 February 2018

Banks defying Lenihanon new rate cut

Charlie Weston and Aine Kerr

Some of the country's biggest lenders were still defying Finance Minister Brian Lenihan last night by refusing to pass on the full benefits of the latest ECB interest rate cuts.

In a blunt message to the institutions, Mr Lenihan yesterday told the Irish Independent that the lenders are "well aware of the Government's views" on the need to pass on the cuts to ease the pressure on homeowners.

However, two of the country's largest mortgage lenders yesterday refused to pass on the full cut, with a third warning it may not pass on future reductions.

And that prompted a furious reaction from consumer groups and Opposition politicians.

Not passing on the cuts is seen as rubbing salt into the wounds of mortgage holders who are ultimately securing the banks' immediate future with a €400bn guarantee.

Bosses at Ulster Bank and its sister operation First Active said they would only reduce their rates for their variable rate mortgage customers by 0.5pc.

And another big mortgage bank, Permanent TSB, warned that it is unlikely to pass on future cuts in rates to its standard variable rate customers.

The minister's warning comes at a time when domestic banks have been effectively bailed out by taxpayers. These banks are also in negotiations to raise billions in new capital -- again with Government backing. And they will have taxpayer representatives on their boards.

Adding weight to Mr Lenihan's intervention on behalf of hard-pressed homeowners last night, Taoiseach Brian Cowen said the coordinated ECB interest rate reductions had "strongly supported" those in the Irish economy.

"We would have had considerable difficulties managing this crisis had we to do so alone," he added.

Last night Permanent TSB and British-owned Ulster Bank and First Active denied they were making consumers pay for bad lending in the past and insisted that their decisions on rate cuts were due to "the increased cost of money being experienced throughout the banking sector".

The failure of Ulster Bank and First Active -- both of which are owned by the Royal Bank of Scotland -- to pass on the record ECB cut provoked a furious response from consumer groups. Consumers Association chairman James Doorley accused bankers of failing to realise that the rate reductions were made to boost consumers and not to puff up bank profits.

"This is completely unacceptable. The cuts were not made to bolster banks' profits and have to be passed on to consumers. Banks are still very profitable despite all the talk that they are going to the wall."


Labour leader Eamon Gilmore demanded that banks fully reduce standard variable mortgage rates.

Banking sources said First Active and Ulster Bank would boost their profits by falling to give consumers the full benefit of Thursday's rate cut. But a spokeswomen for the banks strongly denied this, insisting it was losing money as a huge number of its mortgage customers are on trackers.

Earlier yesterday the majority of lenders were shamed into passing on all of the record ECB cut.

EBS Building Society, Permanent TSB, National Irish Bank, Irish Nationwide and KBC said they would follow the lead of AIB, Halifax Bank of Scotland and Bank of Ireland in passing on the full rate cut to variable rate customers.

But a Permanent TSB spokesman said: "We need to see the ECB base rate being more closely aligned to the rate for borrowing in the wholesale markets. If the gap between the ECB base rate and the funding market narrows, we hope to be able to pass on reductions but if the spread remains wide, we may not be able to pass on future reductions in full."

Lenders have been told by the president of the European Central Bank Jean-Claude Trichet and the Government to pass on the entire cut to variable rate customers. And yesterday a top official of the ECB added his voice to calls for banks to pass on the rate cut.

ECB executive board member Lorenzo Bini Smaghi said: "It is now necessary that this cut is passed on to consumers with a mortgage."

All homeowners on tracker rate mortgages are set to benefit from the lower rates. The three cuts by the ECB over the past three months have reduced the monthly repayments for a homeowner with a €300,000 tracker mortgage over 30 years by €300 since September.

Banks and building societies last night denied they were taking two months to pass on the ECB cuts. Rates were cut by 0.5pc in October and by the same amount in November. Lenders have 30 days to pass on rate cuts to tracker mortgage holders.

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