The Government expects the main Irish banks, each of them beneficiaries of the State guarantee scheme, to swiftly follow Permanent TSB’s controversial move to increase its mortgage rates.
In the face of strident political and trade union opposition to the Permanent TSB decision, the other big lenders declined to reveal their plans. However, they left open for themselves the option of a similar move.
Last night it emerged that the Government, which rejected calls for Permanent TSB to be removed from the guarantee scheme, knew in advance that it planned to raise its standard variable rate by half of one per cent.
“We were advised about their intentions. They set out the rationale behind the decision to us,” said a spokesman for Minister for Finance Brian Lenihan.
AIB said its mortgage rates were being kept under review “given continuing high cost of funding”. Bank of Ireland said it had “no plans to introduce changes” but added that all rates remain under review.
Ulster Bank said its rates were “constantly under review” but said it had no current plans to increase them. The EBS said it was “very aware of the pressures in the market and continue to review our rates” but had no plans to increase them.
However, senior Government sources expect other lenders to raise their rates by the same percentage as Permanent TSB in the near future. The sources said the argument was made that Permanent TSB’s interest rates had been at unsustainably low levels in recent times.
They also pointed to the bank’s high level of tracker mortgage accounts, in which interest rates are contractually tied to European Central Bank rates, as well as the higher charges the bank was paying to access funds on the international money markets.
Many Irish home-owners have been insulated to some degree from the effects of tax increases and pay cuts as a result of a succession of rate cuts from the European Central Bank. Government sources also said mortgage interest rates remained at historically low levels and were much lower than rates in Britain and the US.
Permanent TSB, a unit of Irish Life Permanent, said the measure was required to support its business at a difficult time. “Permanent TSB will lose money this year and we regretfully have had to make this decision in order to minimise losses,” said David Guinane, the Permanent TSB chief executive.
Fine Gael leader Enda Kenny rejected the bank’s argument and said he regarded the rate increase as “an abuse of the taxpayers’ guarantee” to deposits. “These banks owe their existence to the Irish taxpayer,” Mr Kenny told RTÉ.
Siptu president Jack O’Connor said it was immoral for the bank to raise rates at this time, adding that the move would jeopardise jobs in the wider economy by damaging consumer confidence.
Mr O’Connor’s call for the withdrawal of Permanent TSB’s State guarantee was rejected by Mr Lenihan. He also ruled out any Government intervention to force a reversal from the bank.
“I am disappointed by Permanent TSB’s decision to increase their variable interest rates but unfortunately this increase reflects commercial market realities including the increased cost of accessing funds,” Mr Lenihan said.
“The proposal to withdraw the State guarantee from banks that increase their interest rate costs would mean even higher costs for mortgage holders. This illustrates the benefits of the State guarantee to mortgage customers. Permanent TSB are paying the State for the benefit of this guarantee.”
Labour TD Seán Sherlock said Permanent TSB’s move was “an act of incredible arrogance, which shows little appreciation of the lengths to which the State and Irish taxpayers have gone to rescue the financial institutions from the results of their own recklessness and mismanagement”.
While Sinn Féin TD Arthur Morgan said that Mr Lenihan’s remarks were “breathtakingly arrogant”, there was also criticism from the Government backbenches.
Fianna Fáil TD Chris Andrews condemned the decision as a “callous move” which would place mortgage holders already struggling with repayments under severe pressure.
