THE ASSISTANT director general of the Central Bank, Tom O’Connell, has said foreign banks operating in Ireland are not lending or expanding, and the main drivers of credit flow are the two biggest banks, Bank of Ireland and AIB.
He was addressing the Oireachtas Joint Committee on Enterprise, Trade and Employment, which yesterday heard submissions from Chambers Ireland, Enterprise Ireland, the Central Bank and AIB and Bank of Ireland on the issue of financing Irish businesses.
Mr O’Connell said the Central Bank has no leverage over non-Irish banks and could not ensure that they provide credit to customers, even though the ECB requires the Central Bank to provide them with liquidity. “We are an open economy with many foreign banks operating here. If part of the banking system becomes inactive this would not be helpful,” he added.
His comments echoed those of chief executive of Chambers Ireland, Ian Talbot, who said there was a “two-tier” banking system, with certain backs actively lending and others retrenching. Mr Talbot also said Nama had become “a barrier to lending in the market”. While welcoming the expected publication today of legislation relating to Nama, he stressed the need for more information about the methodology, specifically “how things are going to be calculated”. Last week, the Head of National Treasury Management Agency, Dr Michael Somers, suggested Irish banks continue to restrict lending. “The banks, based on what I hear, they are not lending to people that want money at the moment. I think they’re nervous,” Dr Somers said then. He said Nama was required to clean up the banking system. “We’ve got to get them functioning again.”
Yesterday, the Joint Committee heard from AIB and Bank of Ireland about the measures both banks are taking in providing finance to SMEs. Robbie Henneberry, managing director of AIB’s Republic of Ireland division, said 1,000 new business accounts were being opened per month.
He said that 8 out of 10 applications for loans and credit facilities were successful, with the success of formal applications even higher at 9 out of 10. He said AIB provided €15 billion to the SME sector last year and will maintain this level of support this year, despite the 12 per cent reduction in GDP.
Head of Bank of Ireland Retail, Des Crowley said although there had been a fall in demand from businesses for credit, the bank lent €1 billion to business customers in the past six months and opened 8,000 new business current accounts since the end of March. “We have closed businesses in the UK, withdrawn credit facilities in the UK and prioritised lending to consumers and small businesses in Ireland,” he said.
Mr O’Connell also expressed concern yesterday about the extent of the sector’s dependence on wholesale lending, rather than traditional retail and deposit-based funding. He said the banks had a major liquidity problem and that the Central Bank had €130 billion in Irish banks because of the deposit drain and the breakdown of the wholesale markets.
He said Irish banks were more affected than others because of their over-exposure to wholesale lending. However, he said the liquidity issue was abating as international markets settled down.
Interest rates: no plans for rise
AIB and Bank of Ireland have no immediate plans for an interest rate rise in the short term on standard variable rate mortgages, an Oireachtas Joint Committee on Enterprise, Trade and Employment has been told.
Robbie Henneberry, managing director of AIB’s Republic division said the bank had “absolutely no intention” of increasing interest rates on standard variable rates at this point, but that this will not persist forever, particularly as the economic situation improves and the interest rate cycle changes.
“We are at the low point in the interest rate cycle and it is inevitable that interest rates will increase,” he said. He pointed out that AIB’s standard variable rates applied to 40,000 customers and that AIB offered interest rates which were below the average rate.
He also said the Irish market offered some of the most competitive interest rates in the world, particularly in comparison to the UK.
Meanwhile, asked by committee chairman Willie Penrose TD, whether customers could have “some degree of comfort” that Bank of Ireland would not pre-empt any ECB rise, Bank of Ireland’s Des Crowley said: “We don’t see interest rates changing in the short term.”
