FINANCE Minister Brian Lenihan was under growing pressure last night to force Permanent TSB to reverse its decision to raise its mortgage interest rate by 0.5 per cent, a move which industry experts believe will almost certainly be followed by other lenders.
As public anger over the rate hike intensified, leading business and political figures called on Mr Lenihan to act swiftly to force Permanent TSB to reverse its decision, and to prevent other institutions supported by the taxpayer to the tune of billions from following its lead.
Leading the charge, aviation tycoon Ulick McEvaddy slammed the move by Permanent TSB. "It's counter-productive isn't it, really? Raising interest rates when the ECB bank in Europe is bringing them down? It's certainly not good for the economy," Mr McEvaddy said.
Asked what the potential fallout would be were Permanent TSB's move to be replicated by other Irish banks, he said: "The more we increase interest rates and the more impediments we have to borrowing, the worse it's going to get in the economy."
He added: "I think the whole idea was that we had to stabilise the banks, but that doesn't mean the banks are allowed to engage in profiteering. The banks should be lending, and lending for the essential requirements of small business."
In a direct challenge to Minister Lenihan, Mr McEvaddy dismissed his contention that he could not intervene to prevent Permanent TSB raising its interest rates.
"That's why he [Mr Lenihan] has a regulator there, you know. I mean this is the same regulator that stood idly by while banks were giving 100 percent mortgages. Now they should be giving 100 percent mortgages while the economy is stagnating. But they made a mess of it all because they allowed 100 percent mortgages when the market was overheated."
Disquiet over Permanent TSB's move to increase its interest rates was growing in Government circles too with Minister of State at the Department of the Taoiseach Dick Roche expressing his "disappointment" at the interest rate hike.
Newly-appointed Minister of State for Enterprise Dara Calleary, meanwhile, described the interest rise as "completely inappropriate".
"Permanent TSB has justified it on the basis of the cost of funds. But I would really question why they are going for such a big hike at a time when people are under so much pressure," said Mr Calleary. "There seems to be a certain disconnect between the upper echelons in the banks and the real world." Mr Calleary added there appeared to be no mechanism to prevent the hike going ahead.
But Fianna Fail TD, and Chairman of the Oireachtas committee on Economic and Regulatory Affairs, Michael Moynihan, called on the minister to act.
"Something has to be done. The banks have been abusing their powers for some time," he said. "I understand the difficulties the minister is facing but he has to look at this very closely. He has to be fair to the taxpayer," Mr Moynihan added.
As fears grew last night that other financial institutions would follow Permanent TSB's lead, Bank of Ireland Chief Executive Richie Boucher pointedly refused to rule such a move out.
Speaking to the Sunday Independent, Mr Boucher said simply: "We are just constantly reviewing all our products and we're not going to comment any further than that."
A spokeswoman for AIB Bank, meanwhile, told the Sunday Independent: "Given the continuing high cost of funding we have to keep the rates under review."
Mr Lenihan has rejected a call from trade union boss Jack O'Connor of Siptu that the Government withdraw its guarantee on bank liabilities for any lender that raises rates.
"The proposal to withdraw the state guarantee from banks that increase their interest rate costs would mean even higher costs for mortgage holders. This illustrates the benefits of the state guarantee to mortgage customers. Permanent TSB are paying the State for the benefit of this guarantee," the minister said.
On a typical mortgage of €300,000, the 0.5 per cent increase will add an additional €70 a month to the borrower's current repayments.
Permanent TSB, a unit of Irish Life Permanent, said that the measure was required to support its business at a difficult time.
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