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Noonan: Mortgage interest rates must increase to ensure profit for taxpayers

The banks would lose more if they lowered their mortgage interest rates below the current amounts, the minister says.

THE MINISTER FOR FINANCE has said he has no desire to interfere in the interest rates charged by banks to mortgage holders – saying banks must be allowed to operate independently in order to make a profit for the taxpayer.

Michael Noonan yesterday dismissed opposition calls for the government to intervene and ask commercial banks to lower their variable mortgage interest rates, following the ECB’s decision to cut its benchmark rates earlier this month.

While the ECB’s cut takes immediate effect for tracker mortgage holders, some banks had raised their variable rates only days earlier – purportedly because the lower rate on tracker mortgages means they must charge extra interest elsewhere to maintain profit levels.

Noonan said the Central Bank had been asked if it wanted the power to manage the interest rates of retail banks, and had insisted it didn’t want such powers – as keeping interest rates artificially low might encourage banks only to lend to the ‘safest’ corporate clients.

“We want the banks to be profitable again, to protect the investment that the Irish taxpayer has put in,” Noonan insisted, saying profitable banks could ultimately be sold off so that the taxpayer could recoup its massive investment in them.

While this meant some mortgage holders would be faced with higher interest rates, Noonan was “mindful of the costs to the general taxpayer, who owns most of the banks”.

After Pearse Doherty pointed out that the government had intervened in November 2011 and encouraged the banks to drop their rates, Noonan said the banks at that time were far more reliant on emergency funding from central banks.

Banks were now less reliant on that funding, and their interest rates now also reflected deposit rates, the costs of market funding, the competitive environment, and the bank’s own funding arrangements.

Separately, Noonan defended his decision to abstain in a vote at the Bank of Ireland AGM on whether to approve Richie Boucher’s pay of €843,000.

The minister said he had written to Bank of Ireland asking it to respond to the recommendations of the Mercer Report before the end of April, and that he didn’t consider it appropriate to either support or oppose the bank’s own arrangements in the meantime.

He added that the State only owned 15 per cent of the bank’s shares, meaning its stance did not dictate the outcome of the vote.

Read: Gilmore says AIB mortgage hike is “a commercial decision”

More: Permanent TSB to overhaul mortgage interest rates for new customers

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Gavan Reilly

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