Banks 'lent too much', senior executive admits

Irish bankers made a mistake by lending too much money to small group of customers and business sectors, a senior banking executive told a function in Dublin last night.

Robert Gallagher, chief executive of Ulster Bank Corporate Markets, said healthy banks were “inextricably linked” to the health of an economy and admitted “there is no question that we bankers have made mistakes”.

“We have lent too much money relative to our deposit base [and] we filled that gap in the wholesale markets on a short-term basis,” he said.

These mistakes included a concentration of “risk exposure” to certain people and markets and issuing loans based on “incomplete information”.

Speaking at a Dublin Chamber of Commerce dinner Mr Gallagher said while the global credit crisis had exacerbated the problems facing the Irish financial sector, “those fundamental errors that I identified existed irrespective of the [global] current crisis”.

Ulster Bank, owned by Royal Bank of Scotland, is among the banks that have made high-profile loans to property developers.

It loaned much of the €379 million Seán Dunne’s Mountbrook Homes used to buy the Jurys site in Dublin’s Ballsbridge in 2005 and, along with Bank of Ireland, Ulster Bank was owed up to €150 million by Taggart Holdings when it was given court protection from its creditors in October.

Addressing an audience of almost 300 business people and politicians, including Taoiseach Brian Cowen, Mr Gallagher said banks had to rebuild public confidence in them. “Banks have to become organisations that you are happy to put money on deposit with”.

Calling for a new relationship with customers, Mr Gallagher said banks had to provide a “robust challenge” to business propositions and warn of potential risks.

But once a decision was made to invest banks had to quickly provide support so that viable businesses could “flourish, grow and recruit”, he said.

“Equally customers now need to get back to sharing information with their banks on an accurate, timely and complete manner so that together both parties understand how the business is going”.

It was impossible to have healthy companies without healthy banks, he added.

Following a series of bank nationalisations in the US, Europe and of Anglo Irish Bank in Ireland, Mr Gallagher used the analogy of a marriage to describe the relationship between banks and governments.

He said the relationship, in all countries including Ireland, has gone from "occasional arguments, people in different rooms with different agendas" to a shared view that a "healthy banking system is essential for a healthy economy".

Mr Gallagher was speaking as the Government continues to fine-tune its proposals for the recapitalisation of the State’s two biggest banks which could see capital of €7 billion injected into Allied Irish Bank and Bank of Ireland.

In August the Ulster Bank Group said its bad debts rose 43 per cent to €74 million due primarily to loan losses to the commercial and property sector. This is equal to 0.23 per cent of its overall loan book and the bank expects this to rise.