Experts urge Paschal Donohoe to put costly mortgages at centre of banking review

Dermott Jewell of the Consumers’ Association of Ireland said the banking review must protect the consumer. File photo

The Government is being urged to make the bad deal customers are getting from home loans, and cash-back mortgages in particular, the focus of a pending year-long review into the troubled state of Irish banking. 

Finance Minister Paschal Donohoe is expected to announce on Thursday a review of Irish banking that will likely cover everything from the State’s remaining shareholdings in three banks to the role of non-bank lenders.  

It comes as the big two dominant lenders, AIB and Bank of Ireland, as well as Permanent TSB, the third largest mortgage provider, are set to tighten their grip over Irish banking when Ulster Bank and KBC complete their withdrawal from the Republic next year.  The Competition Commission has already announced a probe into some of the plans to transfer mortgage loans.                   

A banking review or forum has been championed by the Financial Services Union. It secured political support in the Dáil and at Stormont earlier this year for any such review.           

However, the review must protect the consumer, said Dermott Jewell, policy and council advisor at the Consumers’ Association of Ireland. 

“There is a need for change," he said. Mr Jewell said that banking service providers such as Revolut and Klarna "may not entirely be in the very best interests of consumers" because they are limited in the banking products they can offer. 

Senior broker Michael Dowling said the relatively large amount of capital lenders in the Republic are obliged by the Central Bank to set aside to cover the risk of mortgage loans turning sour needs investigating. 

Ulster and KBC have both said they cannot generate sufficient returns on the capital they had put into the Republic compared with elsewhere in Europe, "and we need to drill down and find out the reasons why", Mr Dowling said. 

"Why did we lose two banks of such stature and presence in all parts of Irish life, in personal and business and corporate," he said. 

Any banking review would have to question why did they leave and are the capital requirements for the banks too high? 

Mr Dowling also highlighted "the difficult" conflict of the Central Bank acting both as consumer arbiter and as guardian of the banking system and its solvency.    

Founder of the Askaboutmoney website, Brendan Burgess, said residential mortgages should be the key focus.                  

It has less to do with the number of lenders but the way the mortgage banks discriminate against long-standing customers and by offering first-time borrowers, in particular, costly cash-back mortgages, Mr Burgess said. "Those are the big two issues which would bring competition into the Irish market," he said.                            

Seamus Boland, chief executive of non-profit rural development organisation, Irish Rural Link, said the loss of Ulster Bank and KBC will greatly diminish competition and choice for the consumer.

He said there is a middle-ground gap in the Irish banking sector, between the main two banks and credit unions, that needs to be filled.  A “public banking” provider is needed, he said, citing the former ACC Bank’s focus on SMEs and farming.