Dáil Éireann Debate, Tuesday - 7 July 2020
217. Deputy Ged Nash asked the Minister for Finance his plans to work with the banking industry and non-bank lenders to support customers during and after the Covid-19 crisis as outlined in the programme for Government; his plans to support customers by working with banks to reduce the high rates of interest compared to the eurozone average for personal and commercial loans; and if he will make a statement on the matter. [14614/20]
View answerThe Government is very much aware of the economic difficulties and challenges the Covid-19 pandemic is causing for very many people and businesses. Therefore, in the Programme for Government - Our Shared Future - this new Government commits itself to make every effort to get people back to work, to re-open businesses while developing the strategies and the policies to drive this forward. The first major step in this will be the development of an economic and jobs initiative to be published this month.
However, the Programme for Government also contains a further range of measures which are designed to renew economic activity, including measures which will encourage and support the provision of credit to businesses and households. To that end, my Department will continue to maintain close contact with the Central Bank and the banking industry, through the Banking and Payments Federation Ireland (BPFI) as the industry's representative body, as the lending industry works to address the difficulties the Covid-19 situation is causing for both borrowers and lenders and as it seeks to support the regeneration of the economy. Measures which will support new lending to businesses, such as the proposed new Credit Guarantee Scheme, will be very important in that regard.
It will also be important, consistent with the need to protect financial stability and to ensure that banks lend on a prudent and sustainable basis, to try ensure that the level of interest charged on loans will be competitive and economic for both borrowers and lenders. However, it will be important to recognise that there are many factors which influence and determine the level of interest charged on mortgages, business and other loans. These include the fact that the pricing of loans needs to reflect credit risks, funding costs, capital requirements (which in Ireland are elevated due to historical loss experience) and operating costs. Structural factors also play a role, including the duration of fixation of interest rates, the offering of cashback and other incentives in the Irish market, and the mix of deposit and non-deposit funding, which can bring interest rate risk when lending over long durations. In this regard, it should be borne in mind that the under-pricing of credit risks by Irish banks would itself bring financial stability concerns in the event of widespread default events following an economic shock, suggesting that calls for further interest rate reductions for borrowers must be carefully weighed up against such systemic risk concerns.
While interest rates in Ireland remain higher than in many other European countries, it should nevertheless also be noted that there has been significant reduction in interest rates on new mortgage lending over the last few years. For example, the new business interest rate, excluding negotiations, on mortgage loans with fixations over one year, was 4.02% at Jan 2015 and is now 2.70%. These are significant reductions that benefit borrowers greatly over loan lifetimes. Many borrowers currently paying more on their mortgages could benefit from switching onto these lower new business rates.
It is nevertheless the case that the interest rates charged by lenders for their mortgage, business and other loans (and indeed also the decisions they make on the interest they pay for their deposits and other funds) are ultimately commercial matters for individual lenders having regard to cost and competitive considerations, and neither the Central Bank of Ireland, nor I as Minister for Finance, has the power to prescribe the lending interest rates charged banks or other commercial lenders; and neither is it appropriate that I should have such a power. However, I will continue to work with the Central Bank as regulator, and with the banking industry to see if any there are further regulatory or other appropriate measures can be deployed to, in a sustainable way, further support the credit environment for business and personal borrowers.
