MINISTER FOR Finance Michael Noonan has pledged to look at the issue of banks raising interest rates on commercial mortgages when agreeing to allow companies in difficulty to move to interest-only repayment schemes.
Mr Noonan made the promise after concerns were raised in the Dáil by Cork South West Fine Gael TD Jim Daly, who said it was clear the raising of interest rates was becoming a problem for many businesses.
Mr Daly said he understood banks had no difficulty in converting capital and interest type repayments on commercial mortgages to interest-only type repayments, but they were also demanding large increases in the interest rate.
According to Mr Daly, the banks were charging the increased interest rate on the entire sum borrowed and not on the amount of capital in question during the proposed capital repayment holiday of 12 to 24 months.
Mr Daly said in some cases the State pillar banks – AIB and Bank of Ireland – were justifying a doubling of the interest rates to more than 5 per cent on the basis that capital repayments were not being made.
However, anyone making a real effort to save his or her business should be helped by the banks when they were under pressure to make scheduled repayments that were agreed in a very different economic environment, he said.
Mr Daly said he could see no reason why AIB and Bank of Ireland could not agree to a more reasonable rate of interest when allowing businesspeople to convert temporarily to interest-only repayments.
There would be no loss of revenue to the bank, and by deferring some of the capital for a prolonged period, the bank would earn more interest on the account than it would by sticking to the original agreement, he said.
“At present, many people are so worried that they cannot sleep at night. They cannot enjoy family life and they cannot concentrate on making their business the success it used to be because the banks are their biggest nightmare and fear,” he added.
Mr Daly said he was aware that computer-generated letters were the first correspondence received by businesspeople in such difficulties and this was adding to their stress as they dissuaded them from making contact with the bank.
“I do not believe that raising the interest rate for the duration of the holiday in capital repayments is just, moral or helpful in these times when we are all trying to reignite the engine of our economy,” he said.
Mr Daly said it was perhaps time that the Dáil – which was examining the banning of upwards-only rent reviews – would look at similar action to prevent the two State pillar banks from upward-only interest reviews for struggling businesses.
Mr Noonan promised to raise Mr Daly’s concerns with the financial regulatory authorities to examine the area in an effort to ease the increased burden on hard-pressed businesses struggling to survive.
