By Eamon Quinn
Banking in Ireland is not competitive and a “quasi-monopoly” operates in the country, the head of the ECB, Mario Draghi has said.
Speaking to the Oireachtas Finance Committee, Mr Draghi said he was aware that retail interest rates charged in Ireland were at elevated levels but said plans by the EU to push on for a banking union would lead to increased competition in time. Banks will also hesitate to lend if insolvency laws are different across countries, he added.
Responding to questions from Fianna Fáil’s Michael McGrath and Sinn Féin’s Pearse Doherty on the high level of interest rates Irish banks charge households for their mortgages and SMEs for their business loans, Mr Draghi said the evidence pointed to the banking market here operating as a “quasi-monopoly”. The benefits of measures the EU is taking to complete the banking union and capital markets union would go “well beyond” interest rates, he said.
The ECB’s planned wind-down of its massive bond-buying programme would not lead to an increase in a rise in yields in government bonds, Mr Draghi told the committee.
Flanked by Central Bank governor Philip Lane, Mr Draghi said he was aware of the sacrifices made by Irish people during the crisis.
“The Irish people made tremendous efforts and of course for them, we all have, and I personally have great respect. But we should also acknowledge that these efforts are now paying off,” he said, citing the performance of the eurozone economy in recent years.
On Brexit, he said that the EU will stand behind Ireland because the country was among the most exposed to risks if Britain’s divorce process was handled badly. However, he believed the most likely outcome was a soft Brexit agreement.
Mr McGrath told the ECB president that the two main banks — AIB and Bank of Ireland — controlled well over half of the banking market loans and that there was “a massive difference” between the household mortgage interest rates for new borrowers of 3.1% in Ireland and the average rate of 1.7% charged across the eurozone. The benefits of low eurozone rates and ECB policy were not being passed through to Irish people, Mr McGrath said.
Mr Doherty said the ECB had played a negative role during the bailout in insisting that bank bondholders should be repaid and Irish banks say that they are selling non-performing loans to vulture finds because of ECB pressure.
But Mr Draghi said the ECB had provided “unprecedented” levels of liquidity to Irish banks during the crisis. On sales of loans to vulture funds, Mr Draghi said the ECB does not insist on banks selling non-performing loans in fire sales but provides “guidance” to lenders.
He said that distinctions have to be made between strategic defaulters and socially-distressed defaulters. The challenge of creating special agencies to buy distressed loans faces the challenge of not breaching EU state aid rules, he said.
He told Labour’s Joan Burton that the ECB policy of keeping interest rates low had helped both firms and governments, as well as pension funds. “The economy is improving everywhere,” he said.
Mr Draghi said that housing markets are constrained by the lack of supply but that the binds are loosening and that supply was increasing.