IRISH BANKS ARE required to hold about three times the amount of capital as their European counterparts, according to a new report published today by the Banking and Payments Federation Ireland (BPFI). 

The report - commissioned by BPFI and conducted by Martello Strategic Consulting - says that capital requirements introduced after the financial crash have not changed, and this in turn is driving up the cost of lending and mortgages in Ireland. 

These requirements brought in after the crisis led to a “vast increase in higher quality loans and a significant reduction in problem loans”, the BPFI said. But the banking system was not seeing the benefit of this reduced risk as the capital requirements have remained static.

Irish mortgage applicants face some of the highest interest rates in Europe. According to data from the Central Bank last month, Ireland had the joint highest mortgage interest rate in the Eurozone, along with Greece. 

The BPFI said the situation regarding capital requirements will mean little changes over the next five years. 

Its chief executive Brian Hayes said: “Even when we take mortgages issued in recent years which have significantly better underlying quality, Irish banks are required to hold more than twice the level of average capital of European banks.

“In Austria or Belgium, consumers can borrow up to six times their income level compared to 3.5 times in Ireland, based on a similar Loan-to-Value ratio. However Irish banks who are using stricter mortgage lending rules are required to hold more than twice the level of capital than banks in these two countries.”

The research is based on a study of over 600,000 mortgages valued at €83 million across the five Irish retail banks.