Share prices of the main Irish banks have fallen sharply, as investors react to the impact on their profits of lower mortgage interest rates.
More than £1 billion was wiped off the value of the banks' shares yesterday, following the decision of the two main banks to cut their mortgage rates to below 4 per cent, announced late on Friday.
Attention today turns to the state's biggest mortgage lender, Irish Life and Permanent. The market expects it to announce a significant rate reduction when it presents its interim results. It has already cut its main variable rate to 4.75 per cent, but will have to move further following the move of the two main banks.
Other lenders, such as EBS and First Active, are likely to cut their rates in the days ahead to bring them into line with the new standard mortgage rate of just under 4 per cent. ACC will cut its rates next week, a spokesman said.
The falling mortgage rates, as the Irish banks compete after the entry of Bank of Scotland to the market, will significantly reduce the profits they make from their home-lending business. Because of this investors yesterday sold bank shares. Some are also concerned that competition could force lower profits in other areas.
Irish consumers still pay large margins on personal loans and credit cards and foreign institutions could target these areas.
The shares of the major banks lost between 4 per cent and 6.5 per cent of their value on the market yesterday and analysts say the smaller lenders, in particular, may remain under pressure.
While the impact on the profits of the big institutions, such as the Bank of Ireland and AIB, will be limited, smaller institutions, such as First Active, depend much more heavily on their mortgage business. EBS, the State's largest building society, is also heavily reliant on mortgage business, but as it is not quoted it does not face share price pressure.
The Labour party spokesman on finance, Mr Derek McDowell, has called for the mortgage cuts to be made retrospective to the time of the last European Central Bank cut last April and for the Tanaiste, Ms Harney, to refer the banks to the Competition Authority.
"The time for an investigation has clearly arrived. The speed with which the banks were able to react to the entry of the Bank of Scotland suggests that they have been feathering their nests at the customers' expense for quite some time now," he said.