Dublin: The European Central Bank is concerned about the political pressure that Ireland`s still fragile banks are under to cut mortgage rates deemed too high by the government, Ireland`s head of financial regulation said on Wednesday.
The chief executives of Ireland`s banks were summoned to meetings with Finance Minister Michael Noonan last month and heard that authorities could take control of setting mortgage rates or impose a financial penalty if action were not taken.
So far, Bank of Ireland and Allied Irish Banks - the country`s two largest lenders who returned to profit last year for the first time since the financial crisis - have announced rate cuts.
However, with the banking system still "quite fragile" and lenders exposed to very large non-performing loans, the government needs to tread carefully, said Cyril Roux, head of financial regulation at Ireland`s Central Bank.
"They have weak profitability and I have to say that political pressure is built on them to reduce yet further their profitability and that`s something that worries the ECB," Roux told a parliamentary inquiry into Ireland`s banking crisis.
"If they`re not profitable, then they will veer away from their restructuring plans and that will spell a lot of trouble for these banks. We monitor very closely and, at some point, we can say "You`re not viable".
"You have to be very careful of what you wish for."
