BANKS ARE trying to boost margins at the expense of builders by increasing interest rate charges on existing business loans, according to the Construction Industry Federation (CIF).

CIF director general, Tom Parlon, has written to Minister for Finance Brian Lenihan, the Financial Regulator and the Central Bank, accusing banks of attempting to double margins on existing business loans, despite the Government guarantee and the fall in interest rates.

Banks generally loan money to businesses at around 1.25 per cent above the wholesale, or inter-bank, rates that they pay on money markets. The CIF says banks are trying to push these margins up to as much as 2.5 per cent on money that they have already loaned to builders.

Mr Parlon said that complaints from the federation's members prompted his complaint to the Government and regulators.

"Government intervention in the Irish banking system was designed to support the economic life of the country, not as an opportunity for banks to increase their own margins on the backs of existing customers," his letter stated. "Therefore, before there is any further support of Irish banks there needs to be a guarantee that they will play their part by supporting existing customers and lending to Irish businesses at competitive rates that reflect the market."

He pointed out that yesterday the key Euribor interbank lending rate was at 4.73 per cent, its lowest since April, while the European Central Bank has cut its base rate by 5 per cent.

Pat Farrell, Mr Parlon's opposite number at the Irish Bankers' Federation (IBF) - representing the country's main financial institutions - said yesterday that members dealt in a very commercial and professional way with clients.

He argued that while rates have gone up as a result of the financial crisis and risks have increased, Irish banks still operate in a "very competitive" market. He said it was in the banks' interest to ensure clients "survive and thrive", and they would not approach them in any other way.