Inside the world of business
Isme pours cold water on banks' lending claims
FINANCIAL INSTITUTIONS have been at pains in recent weeks to tell us they are lending to business. Yesterday Isme poured cold water on the notion.
The association claimed banks are refusing to lend to the majority of SMEs, citing a survey of members, reigniting the debate over credit availability that has waged since the financial crisis first hit.
Accountancy firm Mazars was commissioned to produce three separate reports on the issue between June 2009 and May 2010. However, rather than enlightening the situation, the Mazars reports have served to generate more questions than answers.
From the outset banks and small businesses have contradicted each other on the level of credit application refusals reported by each side, primarily due to discrepancy between what constitutes a formal application.
Questions were also raised as to the involvement of the Irish Banking Federation in the report. The IBF has been involved in the process from the outset in ensuring Mazars gets the information it needs from the five participating banks.
Although the independence and rigour of the Mazars research is not disputed, the decision to hold a joint press conference between the IBF and Mazars was ill-judged, giving rise to accusations of bias.
So where does the issue now stand?
As the tensions between Isme and the IBF continue, it is becoming more and more evident that the Central Bank needs to take a central role – a move, indeed, recommended by Mazars in its first report.
The decision by the Central Bank to begin publishing SME-specific sector data on bank lending by the end of the year is welcome, although its decision not to publish information for specific banks will undoubtedly attract criticism. Clarity around the issue of credit availability to small businesses is something that small businesses – and the taxpayer – deserve.
Off the peg
THE STATEMENT by the Chinese central bank over the weekend to that it will be “more flexible” in its management of the yuan, signalling its de-pegging from the dollar, has been well received by international markets.
The yuan, also known as the renminbi, has been pegged to the dollar since 2008 in an effort by the Chinese to protect exports during the global economic crisis.
The move comes after increasing pressure from the US and rhetoric from politicians on Capitol Hill who said the peg kept the cost of Chinese exports artificially low. The move also gives the Chinese the high moral ground in advance of a G20 summit in Canada this weekend.
State-run English language newspaper China Daily said in an editorial yesterday that the move spoke volumes about China’s desire to “ensure sustainable development” and welcomed it “as a constructive step that will promote balanced global economic recovery”.
Grandstanding aside, the move suggests confidence in its domestic economic recovery but also that its exporters can compete internationally on factors other than price.
Around 800 million people in China live on less than $1 a day. But, by 2025, consultants McKinsey say the country will have 221 cities with a population of one million or over. The rapid creation of a large middle class, who will benefit from a stronger yuan, bodes well for domestic consumption.
In some quarters China may still be seen as simply a source of cheap manufacturing labour but that is changing rapidly. Firms in the Pearl river delta, under focus following the spate of suicides amongst Foxconn workers, are no longer simply assembling electronics but running sophisticated supply chains and designing new products.
Concerns remain about a housing bubble, human rights and the red tape faced by overseas firms, but for now the authorities are making the right decisions to ensure China continues driving the global recovery.
Speed not everything
LABOUR PARTY finance spokeswoman and deputy leader Joan Burton has expressed hope that the new report from the Central Bank represents the final death knell for the regime of “light touch” regulation.
Using adjectives such as “challenging” and “intrusive” to describe its new-found tough-guy persona, the Honohanite Central Bank is certainly at pains to give such an impression.
Jonathan McMahon, an assistant director general at the Central Bank, began his address to a congregation of bankers yesterday by describing the document as a “fundamental and far-reach shift” that was intended to dispel any ambiguity about its intentions.
Burton’s one concern was that some of the Central Bank’s proposals are not scheduled to be implemented until late 2011. Earlier implementation of all proposals would be preferable, she said. For that to even begin to be contemplated, the Central Bank would presumably have to put its recruitment processes on an even faster track than they are at present.
Speed is not the most important factor here, however. The Financial Regulator of old was always good at laying out its timetable of plans, proposals, consultation periods and implementation dates, some of which it actually met. Regardless of this punctuality, the organisation, as we now know, was ineffective at preventing the collapse of the banking system. The regulator mark two must take the appropriate time to get its controls and procedures right. In any case, it is likely to be driven by an international timetable. For obvious reasons, Ireland cannot afford to be seen to have the lightest -touch regulation in Europe anymore.
TODAY
UK post-election emergency budget; EU-16 current account (April)
You can listen to our weekly business podcast at www.irishtimes.com/business/podcast
For regular commentary on business and economic issues visit our blog, Current Account, at www.irishtimes.com/blogs/business
Twitter users can receive links to the latest business news and blog posts by following us at twitter.com/IrishTimesBiz
