Allied Irish Bank has ruled out any drop in its mortgage interest rate following a meeting with Government officials this afternoon.
The bank met the Economic Management Council made up of the Taoiseach, Tánaiste and Ministers for Finance and Public Expenditure - at Government Buildings today along with officials from Bank of Ireland and Ulster Bank.
The Government called the meeting in the hope of persuading the banks to pass on interest rate reductions without having to force them to do so through legislation.
Speaking after the meeting, AIB’s executive chairman David Hodgkinson said Enda Kenny had raised the issue of struggling homeowners. However, Mr Hodgkinson insisted the lender's customers had already benefited from its decision not to raise rates in line with the European Central Bank over the summer.
“When the ECB raised rates during the summer, we did not increase our rates at that time to our customers,” he said. “Because we didn’t increase it, we won’t lower it.”
Mr Hodgkinson said they had cut rates at EBS, which is now owned by AIB, and claimed to have the lowest rates in the market.
Bank of Ireland chief executive Richie Boucher refused to disclose its plans on rates saying: “we had a productive meeting...I don’t have any further comment to make”.
Mr Boucher added the bank will lend €3 billion to small businesses this year, as required under the terms of its publicly-funded bailout.
The ECB reduced its key interest rate by 25 basis points to 1.25 per cent last week in response to the deteriorating economic outlook for the euro zone.
Tánaiste Eamon Gilmore denied this evening the banks had shown the Government up to be powerless.
He said Enda Kenny had contacted the Financial Regulator Matthew Elderfield and "further action would be taken if necessary". He said he was "very disappointed" by the attitude of the banks.
Yesterday, the EBS joined Permanent TSB, KBC, Irish Nationwide (now part of the Irish Bank Resolution Corporation, formerly Anglo) and Bank of Scotland in announcing their intention to cut variable rates in line with the move.
Ulster Bank and Bank of Ireland are reviewing the situation and but have yet to make a decision.
Danske Bank-owned National Irish Bank has defended a decision to proceed with a move announced last month to increase its variable rates by up to 0.95 per cent.
Earlier, Minister of State at the Department of Finance Brian Hayes said the Government currently does not have the power to force the banks to pass on reductions and instead is using “persuasive techniques” in the hope the banks will do so voluntarily.
Speaking on RTÉ Radio today, Mr Hayes said based on the response from the banks the Government will decide whether or not to introduce legislation. He said it is a “priority issue” that has to be sorted out one way or another before the end of the year.
Mr Kenny has already threatened to introduce legislation that will force banks to pass on interest rate reductions.
Mr Kenny said yesterday he did not think it was “fair at all that a bank, because it priced itself in a particular way on tracker mortgages, should assume it can make up for a shortfall there by increases that are causing serious trouble for persons on variable rate mortgages”.
He said Financial Regulator Matthew Elderfield had said quite clearly some time ago that he might well seek the Government’s support if he was having difficulty with banks passing on interest rate reductions.
However, this morning Sinn Féin’s finance spokesman Pearse Doherty said it is “absolutely scandalous” that some banks won’t pass on the reductions said the Government needs to bring in legislation to compel banks to pass on ECB cuts.
“What Enda Kenny is saying is if Matthew Elderfield comes to him he will take action, but what about the hundreds of thousands of families in mortgage distress coming to him,” he said.
Fianna Fáil’s finance spokesman Michael McGrath said the “top brass of AIB and Bank of Ireland need to be held to account”.
He said: “These two banks owe their very survival to the extraordinary support extended to them by the Irish State…In response, they are dragging their feet on passing on last week’s interest rate cut to hard-pressed mortgage-holders.”
“Many mortgages holders are in difficulty meeting their repayments and this rate reduction and others will ease the burden on them,“ he added.
The Irish Small and Medium Enterprises Association (Isme) called for “serious sanctions” to be introduced against the banks if they fail to pass on the reductions.
Chief executive Mark Fielding said with thousands of companies suffering the bankers continue to “give two fingers to all and sundry”. He said the banks should be “forcibly reminded” they have a responsibility to the economy.
“It is about time that the present Government developed a spine and once and for all stood up for the benefit of the people over the self interests of the bankers. This needs to start today with the Taoiseach taking firm action with any banks that fail to comply with a Government request on lending and interest rates,” he added.
Additional reporting: PA
