Banks have duty to pass on reduction

IT is not only intolerable of Ireland’s major banks to prevaricate on passing on last week’s interest rate reduction

While it is laudable of Taoiseach Bertie Ahern to pressurise the financial institutions to follow the ECB’s example, the political reality is that the Government cannot compel them to lower interest rates.

A similar call had already come from Tánaiste Mary Harney, but the banks and building societies are more likely to heed Finance Minister Charlie McCreevy’s budget threat to penalise those that fail to drop rates in the wake of the ECB move.

It is undeniable that the financial institutions have a grave moral obligation to pass on the full interest rate reduction of 0.5%, as this newspaper demanded when the new rate came into effect last week.

It is grossly unfair that Irish borrowers should have to sweat it out when dozens of banks across the eurozone have already moved to cut rates, in most cases passing on the full ECB reduction to consumers.

If banks in Spain, France, Germany, Holland, Portugal, Austria, Greece, Belgium and Finland can decide to change interest rates virtually overnight, then it is spurious of Irish bankers to claim this issue is so complex as to rule out a swift decision.

This excuse amounts to a smokescreen for a delay when their profits will increase by €1 million a week.

Against this backdrop, Irish people can be forgiven for having such a jaundiced view of the banks.

Indeed, their attitude was mirrored in the Taoiseach’s somewhat ironic observation that, in recent months, he had not come across a bank or financial institution that was poor.

Due to a chronic lack of competition in the financial system, the banks feel they have an unfettered right to squeeze hard-pressed customers who already contribute massively to profit margins so vast they verge on the

obscene.

To date, only IIB home loans; ACC, and Permanent TSB, Ireland’s largest mortgage provider, have agreed to pass on the reduction in full.

While imminent announcements are expected from other institutions, it is unclear if they intend giving customers the full benefit or even a fraction of the ECB cut.

Reflecting the growing level of public frustration with the banks, the Financial Services Regulatory Authority says it will have to look closely at whether or not they are operating competitively if they fail to reduce interest rates.

Significantly, since the arrival of the Bank of Scotland in the Irish market, mortgage holders have saved nearly €500 million as margins were cut in a more competitive scenario.

In contrast, while general interest rates have fallen by 5% in recent years, term loans have not come down.

Nor have the banks reduced interest rates on credit cards, which remain at a whopping 18%.

Amidst the continuing furore over the failure of big financial institutions to pass on the reduction to borrowers, it is absolutely clear that the banks are subject to a moral imperative to cut their interest rates without further delay.