LAST UPDATE | 14 Aug 2023
OPPOSITION PARTIES HAVE called on the Government to take action to ease the burden of mortgage interest rate hikes on Irish households.
Sinn Féin spokesperson on Public Expenditure, Rose Conway-Walsh said that the Government is “turning its back” on households that are struggling to cope with escalating rates.
“Savers have seen no increase in the interest they receive. These households are victims of profiteering banks and a dysfunctional Government,” she said.
Sinn Féin is calling on the Government to convene a meeting with the Central Bank and retail banks to examine their role in supporting those who are dealing with a “massive income shock”.
The party also wants to see temporary and target mortgage interest relief introduced.
“Banks are making similar profits now as they were during the property bubble while struggling mortgage holders live in fear of falling behind with their monthly payments that have increased by hundreds of euro. The banking levy must be extended and expanded,” Conway-Walsh said.
People Before Profit has also called on the Government to do more, as it says that a windfall tax and a mortgage interest rate cap is needed.
Responding to Minister Simon Harris earlier labelling the profits made by Irish banks as “utterly offensive”, PBP TD Paul Murphy asked whether the Government is “going to do something about it or just comment on it like powerless bystanders”.
Murphy said that the profiteering of AIB, Bank of Ireland, and PTSB is nothing short of “scandalous”, and that it is another example of an industry “taking advantage of the cost of living crisis”.
He said that a windfall tax on “super profits” is needed, “as has been done by multiple European countries”, and added that mortgage interest rates should be capped at 3%.
“The banks have tripled their profits compared to last year, with AIB, Bank of Ireland and PTSB making €4 billion in the first six months of 2023.
“This is down to the almost €60 billion they have on deposit with the ECB, while failing to pass on the interest rate rises to depositors. They have shown no such hesitancy with hitting mortgage holders with extra payments of hundreds of euros a month,” Murphy added.
The Chair of the Oireachtas Finance Committee has said “pressure from government is absolutely essential to achieve fairness within the banking sector”.
The comments from Fianna Fáil TD John McGuinness follows remarks from Higher Education Minister Simon Harris, who yesterday labelled the banks as “complete and utter laggards” when it comes to passing on interest rate increases to saving deposit accounts.
Speaking at the annual Griffith-Collins commemoration in Glasnevin cemetery yesterday, Harris said: “We need a reality check here from the banks and they can’t have it both ways.
“A situation where, ‘oh, we’re sorry, we have to increase your mortgage interest rates,’ but actually the poor saver who has been squirrelling away small amounts of money find themselves not benefiting in terms of the interest rate increase on their savings.”
Harris added that it was “unacceptable” that banks are “trying to have it both ways” and that it is ” utterly offensive for Irish banks to be complete and utter laggards when it comes to passing on the benefits to those who have money on deposit”.
The European Central Bank’s main lending rate now sits at 4.25%, the highest it has been since 2001.
Despite nine consecutive interest rate hikes by the European Central Bank this year, Irish banks have been much quicker at passing this rise on to mortgage borrowers than they have been at passing it on to savers.
According to the latest Consumer Price Index, mortgage interest repayments were up 49.5% in the year to July.
On today’s edition of RTÉ’s Morning Ireland, John McGuinness said it is “time for the cabinet to move forward and insist that banks increase their interest rates on deposits” after being “called out” by Minister Harris.
“The banks and any other entity where deposits are held should pass on the benefits of the interest rate hikes to depositors,” said McGuinness.
“That is an essential part of fair banking and there is a need for us to look deeply at the banking structures in Ireland.”
McGuinness also confirmed that there are plans in place to “bring all of the banks before the committee” and that this will “form part of the discussion that we will have with the banks”.
“That type of pressure and pressure from government is absolutely essential to achieve fairness within the banking sector,” said McGuinness.
He also warned that there appears to be a “policy of allowing banks to dictate the trend and the speed of change in this country”.
Government ministers have poured cold water on the prospect of an Italian-style windfall tax on bank profits.
Last week, Italy’s right-wing government announced a surprise 40% windfall tax on “surplus profits” of banks generated by the rise in interest rates.
The announcement shook Italian’s banking system and sent share prices of Italian banks downwards.
However, McGuinness told Morning Ireland that the “manner in which it was being introduced in Italy was very poor” and noted that “Spain and others are looking at ways of forcing the banks to respond”.
Banks globally have reported massive profits this year as they reap the benefits of higher interest rates introduced by central banks in a bid to tame inflation.
Irish banks are currently the worst at passing on rate gains to savers when compared to the UK, the US, the Eurozone and 18 other European countries according to S&P Global ratings as reported by The Financial Times.
When asked if there are any plans to introduce a windfall-tax on bank profits, a spokesperson for the Department of Finance pointed to the bank levy that currently exists.
Since 2014, Ireland has imposed a bank levy based on the level of Deposit Interest Retention Tax (DIRT) paid by credit institutions authorised by the Central Bank of Ireland.
However, this levy is not linked to the profits generated by banks.
The levy raised €150 million each year between its introduction and 2021, a further €87 million in 2022, and is expected to again raise €87 million in 2023.
McGuinness told Morning Ireland: “I think it’s time to look at the bank levy itself as a means to perhaps penalise banks that find themselves in this position, as Minister (Harris) says, that they are laggards.
“The bank levy was to bring in €150 million, it’s now bringing in a little over half of that because the banks have left the country.
“So it’s time to look at the changing aspects of banking in Ireland and the non-banks and perhaps it’s time to extend and increase that bank levy right across the sector,” said McGuinness.
He added: “We should then hold a threat over the banks that should they not comply with the government’s desire to have higher interest rates for depositors that they would then be sanctioned.
“We have to take into consideration the fact that vulture funds now form a big part of the Irish financial system, and therefore they must be included in whatever action is going to be taken by the government in the future.”
McGuinness also hit out at the fact that people are “now paying substantially more for their mortgages than they did before” while “those that have money on deposit are being paid far less”.
“The banks are making substantial profits and it is absolutely obscene that the government and the central banks would stand by while this is happening,” added McGuinness.
“If the banks were simply balancing it out, you can see an argument but they’re not.
“They’re actually increasing their fees, increasing their charges, increasing their interest rates, and when you look at inflation and the possibility that the winter will bring us gas price hikes and so on, and further interest rates, it’s time that we started to manage the banks in the interest of society.”
The average interest rate for a new mortgage in Ireland was 3.84% in May, up from 3.63% in April.
The eurozone average mortgage rate is 3.7%.
McGuinness said “there is a need for us to look deeply at the banking structures in Ireland”.
“We can attract new banks in,” McGuinness told Morning Ireland.
“There has been an argument put forward that we’re closing banks and banks are leaving the country but there are other banks that are interested in Ireland.
“We have the Credit Unions that could be empowered to do much more, and they put at the centre of what they do their customers.
“The banks don’t seem to do that in Ireland and that is what has us in this particular position and the leadership of the ECB needs to be called out and challenged.”
-With additional reporting from Jane Matthews
To embed this post, copy the code below on your site
have your say