Irish finance minister to ask banks to cut mortgage rates

* Lenders under public and political pressure to cut rates

* Government has threatened to hike annual bank levy

* Irish fin min says he expects banks to reduce rates (Adds further fin min comments)

DUBLIN, April 28 (Reuters) - Ireland (Other OTC: IRLD - news) 's government will ask the country's banks to cut the cost of variable rate mortgages and expects them to follow such a recommendation, finance minister Michael Noonan said on Tuesday.

Lenders are under public and political pressure to cut rates, with the government threatening to hike its annual bank levy if they fail to do so. Allied Irish Banks (AIB) last week raised the prospect of easing the burden on customers.

Noonan has asked Irish Central Bank Governor Patrick Honohan to examine how "out of line" each bank is in terms of the gap between their cost of funds and what they are charging for mortgages, and will present the results to the banks next month.

However, ahead of Honohan finishing the study, Noonan said he would be impressing upon the banks that the gap is too wide.

"There's an appreciation that I don't have the power to direct, but I have the power to influence," the finance minister told national broadcaster RTE ahead of talks in May with the main banks operating in Ireland's mortgage market.

"I'll ask them to reduce their interest rates. I'll also be requesting them to indicate the timeline over which they're prepared to do this ... I would expect that they would reduce interest rates."

Noonan had similar meetings with the banks in late 2011 when, under pressure from opposition parties, the government threatened to pass legislation forcing lenders to pass on any cut to European Central Bank (ECB) interest rates.

The government is the majority shareholder in AIB and permanent TSB and controls 14 percent of Bank of Ireland . Noonan will also call in executives from the Irish units of KBC and RBS (LSE: RBS.L - news) for the meeting next month. (Reporting by Padraic Halpin; Editing by Pravin Char)