Government must insist banks increase deposit interest rates, Oireachtas committee chair says

It is time for the Government “to take a strong hand” with the banks and insist they increase their interest rate on deposits, according to John McGuinness, chairman of the Oireachtas Finance Committee.

Mr McGuinness, who is also a Fianna Fáil TD, was responding to comments by Minister for Higher Education Simon Harris who on Sunday said it was “utterly offensive” for Irish banks to be “complete and utter laggards” in passing on interest rate increases to savers.

“The extent of the profits now being made by banks reporting €1 billion in the first six months of a year is huge,” he told RTÉ Radio One.

“The fact [is] that the interest rates are now increasing and depositors – those that have money on deposit – are largely being ignored. I think it’s time for the Government to take a strong hand in relation to this.

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“And now that the Minister has called them out, perhaps it’s time for the Cabinet to move forward and insist that the banks increase their interest rates on deposits, as is the case in the UK.

“For example, they were called out and the interest rates are now increasing to four per cent. So someone has to take a hand in relation to this. The Central Bank seems to be standing to one side and the ECB is not giving any leadership in this.”

Mr McGuinness said the Minister for Finance could make the banks “behave”. The Cabinet can indicate to the Central Bank what is required.

“I think it’s time perhaps to look at the bank levy itself as a means to perhaps penalise banks that find themselves in this position where, as the Minister says, they are laggards,” he said.

“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 therefore, it’s time to look at the changing aspects of banking in Ireland and the non-banks.”

Mr McGuinness added that the fact that vulture funds now form a large part of the Irish financial system had to be taken into consideration, and therefore they must be included in whatever action is going to be taken by the Government with the Central Bank.

“The Government and the European Central Bank are not giving leadership in this area,” he said.

“I’m not making a case against the banks in the State. I’m simply saying that instead the banks and any other entity where deposits are held should pass on the benefits of the interest rate hikes to depositors.

“That is an essential part of fair banking. And, you know, there is a need for us to look deeply at the banking structures in Ireland. We can attract new banks in.”

Financial expert Padraic Kissane said people with deposit accounts in Irish banks are getting “a raw deal”, and that external parties “have to order banks to act correctly”.

There was over €150 billion on deposit in banks in Ireland, most of that on demand, which is the lowest interest rate achievable, he said. This was because there was a carryover in the mindset of people who were concerned about “getting burned.”

The purchasing value of money on deposit was decreasing quite rapidly because of inflation, he warned.

Depositors should be paid appropriately for their money, he urged. “At the moment, they’re not being paid appropriately.”

In response, a spokeswoman for Banking and Payments Federation Ireland (BPFI), said the banks have been slow to pass on the ECB’s interest rate hikes to mortgage holders.

“Mindful of the current cost of living pressures on their customers, BPFI member banks have sought to take a balanced approach and have been slow in passing on the full effect of the ECB interest rate increases to mortgage holders in addition to deposit rates,” she said.

“In this context average mortgage rate increases in Ireland have been the second lowest when compared across other Eurozone countries in the past year.”

The latest move by the ECB in July took its main rate for pricing mortgages to 4.25 per cent. It was the ninth straight increase with central banks around the world working to tame runaway inflation.

Lenders in the Republic were initially slow to pass on the uptick in interest rates internationally to customers here but have begun to catch up.

Bank of Ireland recently hiked its fixed rates for the fourth time in less than a year, while AIB raised its fixed rates in June and its variable rates are due to go up this week.