The widely expected hike, the second in three months, will push the ECB base rate of interest to 2.5%. But Bank of Ireland, Irish Life & Permanent and AIB, which account for about three-quarters of all mortgage lending, are not expected to pass on all of the increase to mortgage holders.

AIB chief executive Eugene Sheehy told analysts last week that he expects the bank's mortgage margins will drop from the current 1% to about 0.7% over the coming years, wiping 45m or 2% from its profits each year.

The big three banks have already held back some of the last interest hike in December, with Bank of Ireland and IL&P raising their standard variable mortgage rates by 0.15% even though the underlying ECB base rate rose by 0.25%.

David Odlum, banking analyst at NCB Stockbrokers, expects a similar reaction this time. "I wouldn't be surprised if some lenders again failed to pass on the full quarter-point increase we are expecting, " he said. "In theory the banks should benefit as interest rates go up, but we're increasingly seeing that benefit shared with mortgage holders. The rise in interest rates has given them the scope to bring margins down."

By tightening margins, the banks are hoping to block an exodus of customers to aggressive newcomers such as Bank of Scotland (Ireland), which is offering deep discounts and cash inducements to people who switch from other lenders.

IL&P is also highly exposed to the mortgage market, as home loans are a big part of its business. It has told investors not to expect any rise in profits as interest rates increase, a sure signal that it intends to hold back some of the increases in a bid to make its mortgages more competitive.