Lenihan stance gives green light to rate hikes

BANKS have effectively been given the green light to increase mortgage interest rates after Finance Minister Brian Lenihan said he will not intervene in the commercial decisions of financial institutions rescued by the State.

From Monday, the country’s largest mortgage lender, Permanent TSB, will increase its standard variable rate for customers by 0.5%, leading to concerns that other mortgage lenders will follow suit.

The bank could not rule out further increases. Its chief executive, David Guinane, said: “We didn’t take this step lightly; we took it after a long deliberation and we would be very reluctant to take that again. But with regards to a 100% guarantee, I’m afraid I can’t give that.”

As angry customers took to spitting at front-line bank staff over the announcement, Mr Lenihan came under pressure to remove the State guarantee of the bank.

SIPTU president Jack O’Connor said he would write to the minister asking for him to “indicate to banks guaranteed by the Irish taxpayer that he will withdraw the guarantee... if they press ahead with increases in interest rates”.

Fine Gael leader Enda Kenny said: “You can’t have a situation where banks under the guarantee are allowed to expand and extend their profits.”

Mr Lenihan said that while he was “disappointed” by the decision, it reflected market realities and he would not be intervening.

“The proposal to withdraw the State guarantee from banks that increase their interest rate costs would mean even higher costs for mortgage holders. This illustrates the benefits of the State guarantee to mortgage customers,” he said.

A spokesperson for the Department of Finance said the same approach would be taken to all six financial institutions under the State’s capital guarantee, including AIB and Bank of Ireland, which have received State capital.

“If there was a good commercial case behind it, I don’t think the markets would be happy to see the minister intervening,” he said.

Unite trade union representative Colm Quinlan said staff are bearing the brunt of public anger.

“A number of Permanent TSB staff members have been spat at. Customers spat across the counter and said ‘this is the only way we can respond to it’. No one should have to face saliva in their faces.”