Banks expand profit margin on lending

The profit margin banks take between the lending rates they charge households and the deposit rates they pay to savers has grown to 3.5 per cent, up from 1 per cent in 2012, according to new Central Bank figures.

Deposit rates have fallen along with European Central Bank rates, but interest rates charged on mortgages and consumer loans have remained high.

The figures, which relate to February, will add to the controversy about the rates which the banks charge on standard variable mortgages, where rates for new borrowers now average 4.2 per cent.

The rates for all new floating rate mortgages, including loan renegotiations,was 3.38 per cent, up 0.12 per cent in the month. The equivalent euro zone average rate was 2.09 per cent.

Interest rates on all outstanding loans for house purchases were 2.72 per cent, with the average figure brought down by the low rate on tracker mortgages, which were 1.04 per cent on average for homeowners. Tracker mortgages account for roughly half of total mortgages in the market.

Fianna Fáil finance spokesman Michael McGrath said there was no justification for the fact that the rate being charged in Ireland is double the rate elsewhere in the euro zone.

“We now need to have direct engagement between the Central Bank, Government and the banks, to bring about interest rate reductions for these 300,000 [variable rate] customers.”

The Central Bank is undertaking a study of the reasons why standard variable mortgage rates here are higher here than elsewhere in Europe, following recent controversy. Most banks offer lower rates to new customers than to the existing customer base.

The data showing an increased interest margin between borrowing and lending rates looks at average term deposit rates on offer for new business and average rates on offer to householders for new mortgages or consumer loans.

Growth in margin of this new business highlights the profitability of the core banking business with the margin, according to the Central Bank, high relative to the trends seen in recent years.