ECB worried about political pressure on Irish banks - regulator

DUBLIN (Reuters) - 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."

(Reporting by Padraic Halpin; Editing by Gareth Jones)