McGrath: 'Critical' that banks work with people in difficulty as rate hike looms 

Finance Minister Michael McGrath added that the combination of high inflation and increasing interest rates has brought a swift end to the era of low-cost lending

(Left to right) Sharon Donnery, Deputy Governor of the Central Bank of Ireland; Minister for Finance Michael McGrath and Jim O’Keeffe, BPFI President and Managing Director of Retail Banking at AIB outside the Banking & Payments Federation Ireland Annual Retail Banking Conference today. Picture: Naoise Culhane

Finance Minister Michael McGrath has said it is “critical” that banks engage and be responsive with customers who are facing challenges as additional interest rate hikes loom.

His remarks come as the European Central Bank is set to meet again on Thursday this week to consider whether to raise interest rates further to stem inflation.

Eurozone government bond yields fell in anticipation of the announcement with investors gradually scaling back their bets about future European Central Bank interest rate hikes. Since July last year, interest rates have risen 3.75%.

Analysts expect the ECB to raise rates by 0.25% and to signal that there is more ground to cover, as it wants to avoid delivering dovish signals which might trigger an unwanted easing of financial conditions.

Speaking on Monday at the Banking and Payments Federation Ireland’s Retail Banking Conference, Mr McGrath said for many households and businesses “higher inflation and interest rates have placed them under immense pressure”.

Mr McGrath said he joined calls by the Central Bank of Ireland for lenders to work constructively with customers, particularly those in difficulty.

“I cannot emphasise enough how critical it is for all lenders to be responsive to customers who are facing challenges and who are trying to do the right thing by engaging early with you to find sustainable solutions,” he said.

I urge you all to consider the impacts on customers when deciding on your interest rate policy and I encourage you all to refrain from charging customers excess or punitive interest rates, particularly for those in most difficulty.

He added that the combination of high inflation and increasing interest rates has brought a swift end to the era of low-cost lending.

Despite the rate increases - and the collapse of banks in the US and Switzerland - Mr McGrath said the banking sector in Ireland and the rest of the eurozone are “resilient” thanks to strong capital and liquidity positions.

Sharon Donnery, deputy-governor at the Central Bank of Ireland, said that despite resilience in the economy “risks clearly remain” adding that this is “not the time for complacency”.

She said that higher interest rates could lead to slower growth and expose vulnerabilities.

“While net interest income is on the rise for banks, so too is credit risk – as households and businesses face into these headwinds. In these challenging times, many of your customers will be facing difficulties in dealing with rising prices.

“It is at moments like these that the responsibility of financial service providers to their customers is at its most important.”