John McGuinness, TD, Oireachtas Finance Committee chair, said the main banks in Ireland plus their lobby group, the Banking and Payments Federation of Ireland, would appear before the committee early next month to answer questions about passing on interest rate increases to savers.
Earlier this week Minister for Further and Higher Education, Research, Innovation and Science Simon Harris said the banks are “utter laggards” in passing on interest rate increases to depositors.
Minister for Finance Michael McGrath said that the bank levy, in place since 2014 and due to expire at the end of this year, will be extended into 2024 as part of the upcoming budget.
While no politician has ever lost many votes by bashing the banks, this time – as we pointed out in these pages a couple of weeks ago – they definitely have a point.
The pillar banks have seen an increase in their net interest margin of one full percentage point in the last year. In layman’s terms, that means they have been charging more for what they are lending without paying more for what savers have on deposit with them.
This widening of the net interest margin means that the banks’ claims that they are also being slow in raising mortgage interest rates – as they are mindful of cost-of-living pressures facing consumers – can also be written off as little more than spin.
Irish banks claim to have unique funding models as they are entirely funded by deposits. To a large degree, this is correct. But that funding model also means that they can, by and large, ignore whatever rate the ECB sets in the market. Their cost of funds is what they are paying their depositors.
By raising the interest rates for borrowers faster than they are raising them for depositors, the banks are increasing their profits. Any argument they make about concerns for borrowers should be taken with a very large pinch of salt.