AIB director insists bank is continuing to lend to businesses

A senior executive at one of the State’s largest banks has told the Oireachtas finance and public service committee that funding requests from small and medium sized businesses are being more rigorously scrutinised.

Allied Irish Banks managing director Donal Forde told the committee the bank has not reduced its lending to the sector. "It's certainly the case that the proposals they put to us are a lot more detailed."

He said the bank is continuing to make lending available and the “volume of loans to small and medium enterprises is at the highest level ever”.

“The banking crisis as you describe it is not impairing the conduct of our business in Ireland. There is more testing of their plans and outlook for the next 12 months," he said.

Mr Forde said AIB may not need to raise additional capital. “I think part of the difficulty in this debate is that banks are being bandied together as if they are all the same. AIB have made it clear we don’t feel we need capital.”

Separately, senior Bank of Ireland executive Richie Boucher said the bank has “publicly stated that we will need to reduce the size of our balance sheet”. He went on to say the bank was getting “significant” deposits from outside Ireland.

The executives are appearing before the Oireachtas committee to face questions about the lack of credit for businesses.

JJ Killian, ISME chairman, disagreed with the views from the banking executives and said credit tightening is starting to hurt small businesses. He claimed banks have reduced overdraft facilities and added extra loan conditions.

Four banks including Bank of Ireland, Bank of Scotland and Anglo Irish Bank and AIB, have revealed funding packages aimed at the small and medium sized enterprise (SMEs) sector. Mr Killian suggested these moves were a public relations exercise.

Irish financial shares have put in a mixed performance in Dublin as the market reacts to the Government’s €10 billion bank recapitalisation plan.

Although the fund is expected to contain a mixture of public and private money the full details of how the scheme will work remain unclear, with some brokers questioning whether the proposed sum is sufficient. The Government plans to use funds from the €18.7 billion National Pensions Reserve Fund.

With the Iseq index of Irish shares only marginally lower at 2.46pm at 2,488, three of the main financial stocks were in negative territory.

Anglo Irish Bank followed its fall yesterday with a further decline today, dropping 2.7 per cent to 35 cent while Irish Life and Permanent stock was 2.4 per cent higher at €1.70. Bank of Ireland shares were down 1 per cent at 97 cent. Having risen in early trade AIB stock slipped 1 per cent per cent to €1.95.

In a statement today credit ratings agency Standard & Poor's said will maintain its negative rating on Irish banks pending the release of further of the recapitalisation scheme.

It said the guarantee scheme and recapitalization fund “appear consistent with our expectations of extraordinary government action” in times of extreme stress.

The agency said higher capital levels would only partly mitigate “against downward rating pressures on Irish banks”.

“The main factors behind our CreditWatch placements or negative outlooks on the four rated independent Irish banks are deteriorating asset quality - a common factor in all four banks - and the long-term funding positions and business model sustainability in relation to Anglo Irish Bank and Irish Life & Permanent.”

Davy economist Rossa White said in a note to investors this morning that because the Irish Central Bank cannot slash interest rates, print money, and devalue the currency in an orderly fashion the “next best thing is to keep the credit tap turned on” and recapitalisation makes that possible.

Minister for Finance Brian Lenihan briefed Ministers on the recapitalisation plan yesterday, with the size, terms and cost of the State's investment as yet undisclosed.

It is also unclear is the legislation needed to allow the banks to be recapitalised will be passed before Christmas.

The Dáil rises on Thursday and, barring an early recall is not due to resume until January 27th.

Later today the final stage of the Finance Bill will be dealt with by TDs and this would allow the Government make a last-minute change to legislation.

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