OPINION:DOING BUSINESS in Ireland in 2010 is a tough proposition. Endeavouring to develop a banking business is possibly even more difficult. It's little surprise, therefore, to see signs of retrenchment or indeed withdrawal by participants.
That said, the announcement that Bank of Scotland Ireland (BoSI) is to cease operations here came as a shock to the bank’s customers who are facing the prospect of seeking refinancing at possibly the worst time.
The decision by Bank of Scotland Ireland to cease operations has given rise to broad brush comment to the effect that “foreign” banks en masse are pulling out of Ireland. Lloyds’ institution-specific view, that it did not see potential for developing its business in the future, might create a false notion that the same working assumption is being adopted by others. This is not the case.
KBC Bank Ireland has been banking in Ireland for more than 30 years. We see a long-term future for our business, catering for both existing customers and those with whom we hope to do business in the coming years.
With a market share of approximately 9 per cent of the home loan market and a significant share of business lending, we regard these accumulated customers as the reward for many years endeavour rather than a burden from which we wish to release ourselves.
Through good fortune and, hopefully, a measure of sensible judgment, we have operated a profitable banking business for more than three decades. It is possible to maintain a banking presence in Ireland and make consistent respectable returns for our shareholder, without betting the shop.
Our approach has been based on having a diversified portfolio of customers and avoiding overdependency on the property market.
That said, we are a bank and we take business risks and so must now work constructively with customers who are experiencing difficulties.
In reality, the distinction made between banks in Ireland should not be between those that are “Irish” or those that are “foreign”. Rather it should separate those with a sustainable business model and those without. A healthy banking market in Ireland will only return when the indigenous banking sector and forward-looking foreign-owned banks re-emerge as potent lending competitors. Equally importantly, viable borrowing propositions have to emerge from the economy.
In Ireland, there has been a culture of encouraging business and financial institutions to participate in the economy to the common good. Understandably, anger and fear have created significant hostility towards the banking sector recently – making the function of banking more difficult through unrealistic expectations of what banks can do for customers in difficulty.
Within the genuine concern of all to ensure that deserving customers, both personal and business, receive the constructive support, there is an emerging risk of rendering the banking market unworkable – by advocating debt forgiveness as opposed to forbearance.
It will be detrimental to the economy and society if increasing numbers of loans go unpaid because of a belief evolved that such loans would ultimately be forgiven.
On his recent visit to Ireland, Canada’s finance minister Jim Flaherty noted that one of the reasons for the solidity of the Canadian economy was the maintenance of recourse to borrowers. It may be politically unfashionable in the current climate to state an old principle but when banks lend money they are entitled to expect those loans to be repaid and an economy where that principle is no longer upheld runs the risk of becoming unbankable in the future.
John Reynolds is chief executive of KBC Bank Ireland
