IBF: Banks should set their own interest rates

THE Irish Banking Federation (IBF) has rejected calls from the Financial Regulator for restrictions to banks’ mortgage lending rates, saying lenders should be able to set their own rates.

Speaking yesterday, IBF chief Pat Farrell said that it would be wrong to suggest that banks and other lenders are making the arrears crisis worse.

Last week, the Financial Regulator Matthew Elderfield called on lenders to stop increasing their mortgage interest rates; warning that he would consider introducing new powers to impose rate restrictions on banks.

Mr Farrell said yesterday: “It is in the banks’ own self-interest to ensure that what they’re doing in interest rates doesn’t exacerbate the situation for mortgage customers who are already in distress. So I think we hear all those things, and take them on board, but I think ultimately, banks should retain the ability to set interest rates.”

He was speaking at the launch of a Department of Social Protection-funded report by the Policy Institute of Trinity College Dublin.

That study has found that Ireland has the lowest level of access to current accounts in western Europe, with many people relying on moneylenders to access credit, while the number of borrowers facing over-indebtedness is rising.

Speaking at its launch, the study’s author, Dr Georges Gloukoviezoff, said: “Financial exclusion and over-indebtedness are serious issues in Ireland which impact on poverty and inequality. These issues aren’t only a technical challenge, but political ones which require strong commitment from the Government.

“A financial inclusion strategy needs to be implemented to address these issues.”

The report said that the dependency of citizens on financial services is made problematic by the profitability constraint on providers.

“As a result of the market logic, financial service providers define norms and rules of access and of use that are inappropriate for a cohort of the population. Given that every relationship has to be profitable, personalised products and advice are considered too costly to be provided to the poorest borrowers,” it added.

Also participating in the report’s launch was Central Bank governor Patrick Honohan, who said that unemployment, rather than interest rate hikes, was the main driver of indebtedness in this country.