Leading from behind on bank saving rates

It only took 13 months for a Government Minister to feel sufficient outrage to comment on the banks’ lopsided view of “fairness” on interest rates. Well that and a high-profile announcement by EU partner Italy that it would impose a windfall tax on bank profits that have been distorted by the failure to pass on the benefit of recent European Central Bank increases to savers.

Simon Harris finally ventured over the weekend: “It’s utterly offensive for Irish banks to be complete and utter laggards when it comes to passing on the benefits to those who have money on deposit, in relation to interest rates.”

Why has that taken so long?

The banks and their representative organisation, Banking and Payments Federation Ireland, note that they have been slower than other banks across the euro zone to raise mortgage interest rates. This is correct to a point.

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Tracker customers who still form a decent chunk of the mortgage market have, as per the rules of their loans, felt the full brunt of the nine increases over the past 13 months amounting to a cumulative 4.25 percentage points. And Irish banks have more recently been outstripping their continental counterparts in raising home lending rates more generally.

More significantly, for all their restraint on mortgage rates, they have been even more reticent on increasing the rates available to savers.

Figures published recently in the Financial Times show that savers across the euro zone were getting the benefit of roughly 20 per cent of interest rate rises, rising to 35 or 36 per cent in France and Luxembourg. In Ireland, the figure was a derisory 7 per cent, making Irish savers the worst served by their banks.

The fact is that a glut of savings means Ireland’s banks have access to a pool of cheap money to lend on to mortgage and other customers. Keeping savings rates low while raising mortgages rates – however modestly – was a simple and risk-free path to Celtic Tiger-era profit.

Minister for Finance Michael McGrath is correct that the Government cannot directly force any bank on what interest rate to set. But Government does have significant persuasive powers at its disposal – including the power of taxation, or simply a radical retuning in the existing banking levy.

And the banks, for all their professed gratitude at taxpayers for the bailout post 2008, have proved to be tone deaf on the issue as the chance of easy profits once again beckoned.