Irish banks have rebuilt their profitability by charging the highest mortgage interest rates in the euro area, the state’s debt agency has said.
The average interest rate on new mortgages was 3.38 per cent at the end of last year — almost double the euro area rate of 1.72 per cent, according to the National Treasury Management Agency (NTMA).
Michael McGrath, the Fianna Fáil spokesman on finance, has introduced a bill to give the Central Bank powers to cap mortgage interest rates.
Michael Noonan, the former finance minister, said the bill would stunt competition in the market. The European Commission and the Competition and Consumer Protection Commission also criticised the bill.
In a presentation prepared for investors, the NTMA said that the cost of small business loans was higher than the average in the euro area. It warned that Irish banks faced a “challenging environment following Brexit” given their exposure to the UK market. Bank of Ireland earned more than 19 per cent of its total income in Britain last year while AIB’s income exposure was just shy of 12 per cent.
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Both banks have a significant amount of lending in the UK: Bank of Ireland has 40 per cent of outstanding credit there while AIB has 14 per cent.
However, the NTMA added that both banks and Permanent TSB had “fundamentally rebuilt” their profitability and were in profit for at least two years. The three banks held €21 billion in impaired loans at the end of last year compared with €43.1 billion two years earlier.
The NTMA heralded the strength of the Irish economy but warned that GDP was not an accurate measure of its health. It said that Ireland could now be viewed as having contingent assets as opposed to contingent liabilities it was left with after the financial crash, in reference to the National Asset Management Agency (Nama) and the Irish Bank Resolution Corporation (IBRC). Nama has repaid 98 per cent of its senior debt and is expected to deliver a €3 billion profit to the state when it finishes its work in 2021. The liquidation of IBRC could return as much as €1.1 billion to the exchequer.
The NTMA said the European Commission’s ruling that Apple owed Ireland €13 billion in unpaid taxes would not change its funding plans.
The appeals lodged by the Irish state and Apple would be “lengthy”, it said, adding that it had made no allowance for the funds.