Business

Taoiseach to meet bank leaders for talks on mortgage rates

BoI, AIB and PTSB chiefs expected to say banks among the slowest in Europe to increase rates on foot of ECB hikes

Taoiseach Simon Harris will meet bank heads on Monday to discuss mortgage interest rates. Photograph: Getty Images

Joe Brennan
Sat Jun 29 2024 - 06:00

The head of the three Irish retail banks will meet Taoiseach Simon Harris on Monday in Government buildings where they will be pressed about lending rates after the European Central Bank (ECB) cut official borrowing costs earlier this month.

It will be the first meeting between the Taoiseach and senior bankers since he took office in April.

Mr Harris, who served previously as a minister of state at the Department of Finance for two years between 2014 and 2016, will also meet representatives from the nonbank lending sector on Wednesday, followed by officials from the credit union movement the following day.

A Government spokeswoman confirmed the planned meetings.

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The Taoiseach said earlier this month — just before the ECB decision and European and local government elections — that he would seek assurances from the heads of all Irish banks that any official interest rate reductions would be passed on to householders without delay.

It is expected, however, that he will be told by the chief executives of Bank of Ireland, AIB and PTSB that they have been among the slowest in European banking to increase mortgage rates — aside from tracker loans — since the ECB started increasing its main rates in July, 2022. The ECB cut its main lending rate by a quarter of a percentage point to 4.25 per cent earlier this month.

Bank of Ireland chairman Patrick Kennedy, for example, told the company’s annual general meeting last month that it had passed on less than 40 per cent of the ECB hikes to fixed-rate products, as it “sought to strike a balance” between increasing rates for savers and borrowers.

While the three remaining Irish banks in the market each offer headline savings rates of 3 per cent for certain products, almost 90 per cent of customers’ money is in on-demand and current accounts, which are earning little or nothing. This allowed them to avoid passing on the full effect of ECB hikes to mortgage borrowers.

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Senior bankers will also be expected to remind the Taoiseach that they are prohibited by competition laws from signalling any future interest rate movements.

The meetings will take place days after the Government reduced its crisis-era investment interests in the banking sector by selling a further 5 per cent stake in AIB. The transaction on Wednesday raised €593 million and cut its holding in the bank to 25.5 per cent.

The Government has been selling down its stake since early 2022 on three fronts: dribbling small amounts of shares into the market; placing larger 5 per cent blocks on occasion; and participating in stock buy-backs by the bank. The holding stood at 71 per cent in January, 2022 before the sell-down programme began.

The State sold its remaining shares in Bank of Ireland in late 2022. It continues to own 57 per cent of PTSB.

The ongoing decline of the AIB stake is likely to bring the Government’s relationship agreement with the bank into focus.

The framework stemmed from the bank’s original rescue and was amended in 2017 before its initial public offering. It says AIB must consult the minister for finance of the day on “material matters”, such as an acquisition or disposal likely to exceed €100 million or something that may cause “significant reputational issues” for the bank or the State.

Bank of Ireland’s bailout-related relationship agreement with the Government did not contain such demands, as taxpayers never held a majority stake in the lender.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times

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