A pay cap of 500,000 euro in place at AIB and PTSB is to be lifted, Finance Minister Paschal Donohoe said.

Mr Donohoe, who made the announcement after the Government sold its final 2% stake in AIB on Monday, said it was not appropriate to set pay restrictions when it did not own the bank.

He said a cap in place for PTSB, in which the State still holds a 57.4% share, would also be lifted.

He said that since the financial crash, various regulatory reforms have been introduced to strengthen the oversight of the banking sector.

He said this range of measures was a better way to regulate the banks rather than with salary caps.

“This pay cap will now be removed for both of those banks,” Mr Donohoe said.

“The skillset required in the banking sector is evolving, and in some cases the greatest demand for staff can be in areas such as IT, cyber, risk management, legal areas and compliance decisions.”

Mr Donohoe said the cap was being lifted to ensure the banks could compete with one another more effectively for personnel.

“These skills are in demand right now across the economy, and so the banks are competing for this talent against other companies who are more flexible and have different remuneration policies.”

Mr Donohoe was asked about the possibility that the public would be annoyed at bankers’ maximum pay increasing while interest repayment rates are high.

“Of course, I understand that any decision like this with regard to bank pay is one that will always be viewed critically by people who are both critical of our banks, but also remember all of the cost and difficulty that I was at pains to acknowledge in my statement.

“What I would say to those, and there are many who continue to be concerned, is firstly that I don’t believe that it is correct that we set pay in a company that we no longer have any share in, that as a small, open economy we’re trying to attract investment into our economy, and I would hope that banks like AIB and Bank of Ireland will continue to be able to attract investment in their future.

“For that reason, us playing a role in setting their pay when we no longer own a single share in those companies is not appropriate.

“Again, I can understand the sensitivity of a decision like this for so many, but the changes that we have made and how our banks are supervised are really considerable.”

He said they would review options in relation to the future ownership of PTSB under review.

“I did decide there was a fundamental difference between a bank of the scale of PTSB operating in an environment in which one bank is removed from the pay framework, as opposed to where both other banks that it competes against are removed from it.