BANKS ARE open for business and are continuing to lend to consumers and businesses despite the economic downturn and the credit crunch in international financial markets, an Oireachtas committee was told yesterday.
Addressing the Joint Committee on Finance and the Public Service, Irish Banking Federation chief executive Pat Farrell said: "There is a myth at the moment that banks are not open for business. They are open for business."
While lending had been curtailed, he said there was still a consistently high level of lending.
At about €6 billion, the volume of new mortgage lending in the first quarter of 2008 was at the same level as in the first quarter of 2005. The overall value of the residential mortgage market grew by 1.8 per cent in the first quarter of 2008, while private-sector lending to business grew in the first quarter, he said.
Banking representatives sought to assure the committee that the banks had not changed their lending criteria on the back of the credit crunch, that the level of banking liquidity was sound and that mortgage offers had remained consistent with previous years - although the level of take-up had reduced this year.
"We are supporting AIB customers with the same volume of mortgage approvals," said Donal Forde, managing director of AIB Bank.
"For the three months to May the same volume of loans were approved as in 2007, but drawdowns reduced by 12 per cent."
The same volume of personal loan approvals was being maintained, and in the year to date it had approved 15 per cent more credit than it did in the corresponding period in 2007, said Mr Forde. New and emerging business customers had been approved with a similar volume of loans.
However, a number of committee members said there was anecdotal evidence that consumers and business customers were finding it difficult to access finance from banks, while interest rates and charges were increasing.
Fine Gael TD Kieran O'Donnell said banks were blackmailing business with their level of surcharges.
However, Mr Forde defended AIB's surcharging policy. "A surcharge is where somebody has broken an agreement with the bank," he said, adding that many of those subject to surcharges were not managing their accounts with discipline.
"It makes no sense to indulge customers who have no reason to be overborrowed. We stand over our charges, and it is a rational thing to do in the current climate."
Despite the fact that the domestic banks in Ireland have virtually no exposure to the US sub-prime mortgage market, Irish banks have been significantly impacted by the credit crunch, said Richie Boucher, head of Bank of Ireland's retail financial services.
"We do not believe there is a Northern Rock lurking in Ireland," he said, referring to the UK bank which was taken into state ownership in February after a funding crisis brought it close to collapse.
However, the credit crunch has forced banks to pass on the increase of the cost of funds in the interbank market.
"The international liquidity issues have driven up the real cost of funds to the banks so that three-month money is costing banks close to 5 per cent. This increase in the cost of raw materials to the banks has had to be passed on to most customers in the form of higher interest rates," said Mr Boucher.
Mr Forde said AIB had absorbed a significant part of the increases that had occurred and had delayed any pass-through of those costs to customers for as long as possible.
The banks also rejected a suggestion to relax capital requirements to free up access to capital for customers.
"It would diminish the standards of Irish banks. It would mean we have lower standards than anybody else," said Mr Forde.
Mr Boucher said he would be concerned with any measure which would be seen to interfere with the independence of the financial regulator.