Irish government could hike bank levy amid mortgage dispute - Deputy PM

DUBLIN (Reuters) - Ireland may consider increasing the annual charge it levies on banks operating in the country if lenders do not move to cut variable rate mortgages, Deputy Prime Minister Joan Burton said on Sunday.

Ireland's recovering banks are under political and public pressure to cut rates that at 4.2 percent are far above the euro zone average of 2.47 per cent, Irish central bank data show.

The Sunday Independent newspaper reported that new measures to penalise lenders, including hiking the levy that yields 150 million euros (£108.3 million) a year from across the sector, were being "actively canvassed" within government.

"That is a possibility," Burton told national broadcaster RTE when asked whether the government may increase the levy if the banks do not cut rates.

The Irish government introduced the three-year levy last year, saying it reflected the significant role played by the banking sector in Ireland's economic crisis.

Irish banks have been reluctant to pass on European Central Bank (ECB) rate cuts to their mortgage customers with most lenders only returning to profitability last year following the 2008 financial crisis.

Permanent tsb (IPM.I) (PTSB), which was still loss-making last year and launched a 400 million euro public share offering last week, has said it will not bend to public criticism and would base its pricing on "commercial" considerations.

(Reporting by Padraic Halpin; Editing by Gareth Jones)