THREE OF the State’s leading banks have refused to pass on the latest European Central Bank rate reduction of 0.25 per cent to variable rate customers, while a fourth has only passed on a portion of the cut.
The second ECB rate cut in a month means holders of an average-sized tracker mortgage of €300,000 will be better off by more than €500 a year. For every €100,000 owed a quarter point reduction saves homeowners about €15 a month
While banks must pass on cuts to tracker mortgage holders, they are not obliged to pass them on to standard variable rate holders, who make up 30 per cent of the Irish market or a total of 207,000 mortgages. AIB, Ulster Bank and National Irish Bank said they would not pass on the latest rate cut. All three also failed to pass on November’s rate cut, although AIB eventually relented after significant pressure was applied.
Ulster Bank dug its heels in then and is doing the same now and will keep its standard variable rate at 5.1 per cent, nearly two points higher than some of its competitors. A bank spokeswoman defended its decision and said the ECB base rate affected just 5 per cent of its funding.
AIB’s executive chairman David Hodgkinson said the capital provided to it by the State meant it had to “do all that we can to help our customers and support economic revival, while protecting the taxpayers’ investment. Today’s announcement is in line with those aims”.
NIB said that as a branch of the Danish Danske Bank, it was funded through wholesale market and ECB interest rate fluctuations do not determine pricing on its products. Bank of Ireland, which also failed to pass on last month’s rate cut to its standard variable rate customers, said it was now prepared to pass on just 0.15 per cent of the cut. It defended its failure to pass on the full reduction by saying its funding costs remained “elevated”.
A Government spokesman welcomed the ECB cut and said it had received assurances from the Financial Regulator that “he will seek to ensure that banks do not use interest rate cuts to generate windfall profits at the expense of their customers”.
Tánaiste Eamon Gilmore promised the Government would “act decisively, forcefully and effectively with the banks and anybody else in the interests of those who hold mortgages and are having difficulty repaying them” and he threatened a fresh confrontation with banks who failed to pass on the cuts.
EBS, which is owned by AIB, is to reduce its standard variable rate by 0.35 per cent, while Permanent tsb is passing on the full rate cut to all customers, although it remains the most expensive of the mainstream banks and the rate now applying to owner-occupiers with standard rate mortgages is 5.19 per cent.
The Irish Bank Resolution Corporation, which is made up of Irish Nationwide and Anglo Irish Bank, said it would also be passing on the cuts.
“The expectation is that lower interest rates are being passed on to lower credit costs,” said ECB president Mario Draghi. He declined to say whether banks in receipt of state funding should be obliged to pass on rate cuts to their customers.
The Irish Small and Medium Enterprises Association demanded that the Government take the strongest action possible, including sanctions, on banks that refuse to pass on the reduction.
ISME chief executive, Mark Fielding said the second ECB interest rate reduction in as many months would seen as an opportunity “by the greedy bankers to maintain the benefit at the expense of their customers. These leeches should be forced through stiff sanctions, including penalties, to do the right thing and pass the rate cut on to their hard-pressed customers”.