Fears consumers will bear brunt of €300m bank levy
Davy Stockbrokers senior analyst Scott Rankin said this could be done in the way the banks vary mortgage rates in the post-ECB 0.5% cut environment. He thought the possibility unlikely but saw it as an option open to the banks.
An Irish Bankers’ Federation spokesman rejected any suggestion that this would be done.
Competition will keep the market on its toes, he said.
Customers fear, however, that they will bear the brunt of the levy on top of the 131% increases imposed on cheques, ATM and credit card transactions.
Felix O’Regan of the IBF said: “To suggest the banks could claw back the levy by increasing their charges does not stand up,” he said.
Increased charges would have to be sanctioned by the Director of Consumer Affairs. Intense competition in the market would take care of the rest, he said.
When Bank of Scotland entered the market some years ago it forced lenders to cut mortgages by a full 1%, saving millions annually on interest payments for the consumer.
Privately, some banks are saying the levy has undermined confidence in the banking sector whose profits will be undermined to some degree by the levy. British fund managers have expressed concern they had no indication Finance Minister Charlie
McCreevy was going to hit the banks the way he did.
That will make them wary of buying into the Irish market for some time, sources said.
First Active becomes a takeover target next October when the five-year moratorium on buying banks ends.
First Active refused to comment yesterday on the harsh reality that its 3% of retail deposits cost €9 million in lost earnings over the full three years.
In effect, Mr Rankin in his assessment of the levy yesterday, said it would reduce earnings by 5.6% and 5.1% in the next two years, respectively.
“Overall, the financial impact will be modest on the basis of our initial review,” he said. Justifying the move, Mr McCreevy said the banking sector was dynamic and could well afford to live with the impact of the charge over the three years.
The levy will be imposed on financial institutions based on their share of DIRT (deposit interest retention tax) payments made to the Government in 2001.
The €100 million will be raised from financial institutions based on their share of the retail deposit market, a function of which is the payment of DIRT to the Government.
The quoted sector will pay about 60% of the new tax with the balance being paid by foreign competitors (like Northern Rock), credit unions and building societies.
