Dáil Éireann Debate, Thursday - 1 February 2024
90. Deputy Brendan Griffin asked the Minister for Finance if he is satisfied that Irish banking customers are getting a good deal from their banks in areas such as interest on deposits, transaction charges, loan rates and other competitive metrics; what engagement he has had with the banks on these issues; and if he will make a statement on the matter. [4552/24]
View answerThis question is about Irish banks and the deals they are giving to customers in terms of deposits, interest rates, the rates they are charging for loans, transaction charges and other issues. It is important that Irish consumers get the best possible deal from the banks, but that does not seem to be the case on a range of metrics. What engagements is the Minister having with the banks on this and will he update the House on any progress?
Interest rate setting and transaction charges are ultimately matters for banks themselves as commercial entities. The banks in turn are influenced by the general interest rate environment, their own risk appetite and competitive pressures in the market. In the initial months of the ECB's tightening cycle, Irish banks lagged behind euro area banks when passing on interest rate rises on both lending to and deposits from households. Pass-through of interest rate hikes, however, which is necessary to tackle inflation, has increased in more recent months.
Compared with levels observed immediately before the ECB rate increases began, weighted average interest rates on new mortgages for house purchases in Ireland have increased by 1.57%, while in the same period the EU weighted average increased by 2.21%. The weighted average interest rates on new mortgages issued by Irish banks were 4.25% at end November 2023, while for comparison the EU had a weighted average of 4.13%.
The Central Bank has called out the need for banks to do more in passing on the higher interest rates to their savings customers, in particular, and informs me this has started to happen. Both household and firm deposit rates with an agreed maturity, also known as term deposits, have increased in recent months.
The interest rate on new term deposits in Ireland was 2.62% in November. This compares to an EU weighted average of 3.33%. The Central Bank informs me that there is more capacity in the system for borrowers to switch than is being availed of. Last year, I met the mortgage industry, including the BPFI, chief executive officers and senior representatives of all the main mortgage lenders and servicers. I made it clear that banks and all other mortgage entities should be fully aware of the challenges that some of their customers are facing and therefore, lenders and servicers should respond by assisting their customers who are experiencing difficulty. Following this engagement, the industry announced a set of initial eligibility criteria to facilitate people switching their mortgage from a non-bank to a bank.
I thank the Minister for his response. While some signs have been encouraging of late, it is still clear to me that banks have been extremely slow to react. It is always when it suits the banks that they are slow to react. They are not so slow to pass on interest rate rises to borrowers but for deposit holders, those interest rates rises simply are not passed on to the same degree. Recently, with the entry of Bunq into the market, we have seen quite a flight of deposits because of better rates being offered. It shows that Irish consumers want to have better rates. At a time of inflation, albeit decreasing thankfully, people are losing a huge amount of money because of the really poor returns they are getting on their deposits. I ask the Minister to keep up the pressure on the banks to ensure people get a fair deal and that they are not losing significant amounts of their savings every year by simply keeping those deposits in the bank. At a time when we are trying to bring inflation under control, we do not want to see huge spending by people trying to avoid losing money because of deposits.
I thank the Deputy. We should acknowledge that collectively we have a role to play because when I dug into this matter a little deeper and looked at the numbers it was clear the overwhelming majority of savings people have are in instant access accounts or current accounts, not in deposit accounts or term notice accounts where the interest rate is much higher. We can help ourselves, in addition to putting pressure on the institutions to ensure there is an appropriate level of pass-through. That is on the savings side. On the mortgage side, I put some figures on the record a moment ago. The overall level of pass-through, of increases in interest rates has been lower in Ireland, at 1.57% compared to the EU average of 2.21%. In regard to new mortgages being issued the weighted average interest rate in Ireland is in line with the EU average. However, we always welcome more competition. The role of non-bank lenders, of credit unions will become increasingly important in the future.
I thank the Minister. We could talk about this all day. In the very brief time I have, again I ask the Minister to try to keep engaging with the banks to ensure the best possible outcome for Irish consumers.
In regard to transaction charges, we have seen the use of cards and non-cash methods of payment have become extremely popular. It is the norm now. However, it has a cost on business particularly in the hospitality sector. The cost of those numerous, small transactions that take place day in, day out in restaurants and cafes, is enormous. That is something that the banks are profiting from at the expense of small business. Many businesses are struggling to hold on at the moment. I differ with the Minister in relation to the 9% VAT rate for example. That is the very highest that the rate should be. However, for those businesses, one of the things that could help is a reduction in the fees that they pay on each transaction. All of those fees add up. At the end of the month we see huge figures being paid by those businesses to their banks just to accept payment from customers, rather than cash.
When it comes to the level of fees, the Central Bank of Ireland has the key role in terms of legislation and regulation of those fees. The Deputy's points will be taken note of. It is important that individual consumers and businesses have as much choice as possible when it comes to methods of payment. The Deputy will be aware that I brought forward the heads of Bill on the issue of access to cash, which will help to protect the ATM network in communities all over Ireland and will also protect the cash lodgment services which are so important for businesses all over the country.
In addition we are developing in parallel the national payment strategy which will deal with the issue of ability to use cash and also the option of using a digital form of payment. That work is advanced and I very much welcome the Deputy's views and his inputs in regard to that over the period ahead.
