Noonan to grill banks on high rate cost

Bank chiefs are set to be quizzed today on how they propose to offer families with variable rate mortgages a reprieve or otherwise face the threat of Government action.

Finance Minister Michael Noonan will meet with Allied Irish Banks CEO David Duffy among others and ask what the short- and long-term plans are to offer variable mortgage holders alternative rates.

AIB — which is 99% owned by the State, — will be confronted with Central Bank research which outlines how Irish variable rate mortgage holders are paying considerably more than the eurozone average.

The Government has already signalled that extra powers could be given to the Central Bank to force banks to alter their rates or fresh levies could be slapped on lenders.

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Mr Noonan will also meet with Ulster Bank CEO Jim Brown today and express his concerns about the high rates for mortgage owners.

While AIB’s David Duffy has said it will shortly look at possible rate reductions, Mr Brown recently said no immediate changes were planned by the Royal Bank of Scotland-owned lender.

Bank of Ireland chief executive Richie Boucher is to meet Mr Noonan on Thursday, where the same pressure is expected to be applied on the lender that is 14% owned by the State.

Permanent TSB CEO Jeremy Masding will also meet the minister this week.

A Government source said: “They’re being presented with the Central Bank’s research and being asked about their long-term plans. The Government have already said rates have to come down.”

It is understood that parts of the Central Bank report-yet to be published highlight that Irish variable rates are significantly higher than elsewhere. The option of alternative rates, similar to that offered to new customers, is one of the options preferred by the Coalition.

More than 300,000 families are on high variable rates of up to 4.5%. The difference between here and other member states sees families having to pay thousands of euro more per year.

The Coalition has faced significant pressure in recent weeks to intervene but there is also concern that pressure on the banks could scare away new lenders entering the Irish market and investors interested in state-owned banks.

Central Bank governor Patrick Honohan has publicly advised against any interference with the banks and said tight controls over mortgage interest rates would be counterproductive in ensuring an easy flow of credit.

New Beginning, which campaigns for struggling mortgage holders, last night said that Mr Noonan would have to persuade the lenders to alter mortgage rates, rather than force them.

Barrister and co-founder Ross Maguire said something was needed to help the 300,000 variable mortgage holders here being charged twice the eurozone rates.

“It is difficult to see how Minister Noonan can do anything other than beg the banks,” said Mr Maguire. “All he has is a moral power, but no legal power. We might see a small reduction across the board over the next couple of months, but there is zero chance of levies being applied on banks or their rates being changed. The Government also have their eye on competition coming into the market and this would go down very badly.”

He said he did not expect there would be a difference in Mr Noonan’s approach to the non-state bank. “Just because he [the minister] owns AIB, it doesn’t mean he has any power unless he throws out [the] board but then it becomes unsellable,” said Mr Maguire

The State’s holdings in AIB, Bank of Ireland, and Permanent TSB are valued at about €16.4bn.

Mr Noonan recently indicated he had no problem trying to shame the banks into lowering variable rates: “I’ve no reluctance to talk to CEOs of the banks at any stage and I’ve done so regularly and I can say ‘here are the facts, what’s your response?’"

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