Irish banks blame capital requirements for driving up cost of lending

Major lenders say they must hold three times the capital of European banks

Banking Payments Federation of Ireland say current capital requirements are effectively trapped at financial crisis levels. Picture: iStock

Banks in Ireland say they are required to hold three times the capital for mortgages compared to average requirements across the EU which they claim is impacting the cost of lending here.

Banking Payments Federation of Ireland (BPFI) say stricter lending rules have led to an increase in higher quality loans and a reduction in problem loans in Ireland but that current capital requirements are effectively trapped at financial crisis levels.

BPFI commissioned Martello Strategic Consulting to study more than 600,000 mortgages totalling €83bn across the five Irish retail banks AIB, Bank of Ireland, Ulster Bank, Permanent TSB and KBC. The report estimates the extra capital that the Irish banks are required to hold is about €2.5bn.

Ireland continues to have some of the highest mortgage interest rates in Europe with the BPFI claiming that capital requirements for Irish banks are driving up the cost of lending and mortgages.

Brian Hayes, Chief Executive, BPFI said that despite the major improvements in the quality of the overall mortgage book in Ireland, there has been little or no impact on lowering capital requirements.

"Irish banks are required to hold more than twice the level of average capital of European banks. In Austria or Belgium, consumers can borrow up to six times their income level compared to 3.5 times in Ireland, based on a similar Loan-to-Value ratio," he said.

"This report lays out in extensive detail the yawning gap between Ireland and EU banks, despite the increasing quality of the loan book in Ireland in recent years. This is having a direct impact on the mortgage market in Ireland," Mr Hayes said.