Banks double business loan interest rates over past year

The average interest rate on new Irish business loans has almost doubled to 6.05 per cent in the year to May, resulting in borrowing costs that are about a third higher than those faced by companies across the wider euro zone, according to the Central Bank.

By comparison, the average new Irish mortgage rate has increased by 40 per cent over the same period, to 3.84 per cent, according to the regulator’s latest monthly interest rates report.

Irish banks are continuing to lag behind European peers in passing on official rate hikes to mortgage customers as they pay households little or nothing on most of their deposits.

The average 6.05 per cent rate applied to €1.34 billion of new loans provided by Irish lenders to non-financial corporations in May compared to an average of 3.19 per cent on offer a year earlier, according to the data. The latest equivalent rate across the euro zone is 4.56 per cent.

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The 3.84 per cent average rate that applied to new Irish home loans in May was up from 2.72 per cent a year earlier and slightly ahead of the latest eurozone average rate of 3.7 per cent. It was up 21 basis points from the average of 3.63 per cent in April.

Although Irish banks have been slower than their EU peers to pass on the impact of higher interest rates since the European Central Bank (ECB) started its current rate-hiking cycle, they are now increasing rates ahead of the EU average on a monthly basis.

The ECB hiked its main lending rate from zero last July to 3.75 per cent in early May, as big central banks globally rushed to increase the cost of borrowing to try to rein in inflation. The ECB has since increased its rate to 4 per cent, while its deposit rate is 3.5 per cent.

The Republic’s surviving three banks currently have about €60 billion of excess deposits stored with the Central Bank. Income on these idle deposits have been the main earnings driver for Irish banks over the past year.

While the average rate that banks are paying households for deposits with agreed maturity dates of up to two years has increased to 0.82 per cent from 0.06 per cent in the year to May, more than 90 per cent of retail savings are in on-demand accounts, which were earning an average rate of 0.04 per cent in May.

Irish businesses were earning an average of 2.58 per cent in May in term deposit products of up to two years and 0.08 per cent on money in on-demand accounts.