Banks warned to cut rates or face a government cap

Central Bank chief Patrick Honohan has warned banks to cut their variable mortgage interest rates or face government policy decision that may include a cap on rates.

In a report for Finance Minister Michael Noonan, Mr Honohan said banks needed to recognise that charging “exploitative” rates would be counterproductive if it forces government policy reactions.

In that report, Mr Honohan said: “Their boards and management need to recognise that charging spreads that excessively exploit the current weak competitive environment risks being counterproductive if they bring down upon themselves Government policy reactions.”

Mr Noonan is holding a series of meeting with the heads of the country’s six banks this week, where he is expected to pressure them into cutting their variable interest rates.

Most variable rates in Ireland are between 4.3% and 4.5%. Variable rate borrowers here are paying about €350 a month more in interest than in other EU countries.

Michael Noonan met AIB, Ulster Bank and ACC Bank yesterday and discussed Mr Honohan’s report with them. Meetings are scheduled with Bank of Ireland, Permanent TSB and KBC Bank.

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