Talking Property

We have yet to see banks, once pillars of society, beg for forgiveness, says ISABEL MORTON

LAST WEEK the governor of the Central Bank, John Hurley, in a speech to ACI Ireland (the financial markets association) spoke of the positive effects that NAMA (National Asset Management Agency) would have on the banking sector.

Indeed we all truly hope that this will be the case as all else has failed to date, so everything hangs on NAMA succeeding.

Given the pathetic amount of business the banks have been doing over the last nine months, they may as well have locked their doors and gone home.

And their doors are unlikely to be opened to the public again until NAMA has been in to do the big clear out and clean up.

Those thinking about availing of the drop in property prices and the lowest ever interest rates in history should first try knocking on their banker’s doors.

The general rule of thumb these days is that the banks make a verbal agreement to lend and string you along until you actually find a property and need the money, then it’s another story. Suddenly, myriad little problems pop out of the woodwork.

They are going to endless lengths to prove how their doors are open, but invariably, you won’t get past the hallway. The days of being whisked into the inner sanctum and offered double what you were considering asking for have long since gone.

Banks are hanging on to every last cent until they discover how things are going to pan out with NAMA. But they have to keep you on side and dangling in anticipation, as they can’t afford to loose another potential client.

Remember, the more they lend, the more they make. The only problem is that they have to have it in the first place, in order to be able to lend it.

Whatever about the property developers, whose huge debts are NAMA’s main concern, the sooner that the State’s ‘bad bank’ is up and running the better for the rest of us.

Everyone has become so cautious and careful about whatever cash they have, that they are eking out every last cent as they have no idea how long this unofficial embargo on lending will last.

But for those who haven’t already gone out of business, time is running out.

Many businesses, particularly small ones and sole traders, are suffering badly from the total lack of credit facilities and working capital and may not survive long enough to benefit from NAMA’s recapitalisation of the banks, who in turn, have to start lending to the public again.

It all takes time and there are many who are fast running out of it. And, ironically, the banks, who are responsible for the mess in the first place, are now putting pressure on their customers. It is the ultimate Catch 22 situation.

They appear to have gone from one extreme to the other and both ends of the spectrum have had an equally dramatic effect on our economy.

Bankers, once the pillars of society, have (to put it mildly) lost our trust and respect and we have yet to see them beg for forgiveness and prove to us that they are going to change their modus operandi.

They quite simply don’t know how to operate these days. They need to be debriefed and retrained from scratch as most of them have either no experience or no memory of normal balanced lending practice.

NAMA might, with any luck, result in the eventual resumption of lending but will it have any real influence on the culture and ethos of the banking business?

John Hurley’s speech was geared to the finance markets association rather than the general tax-paying public, and he only made the vaguest and most tacit acknowledgement of misdemeanours and wrongdoing by the banks.

And what is going to be done to ensure that nothing like this ever happens again? New rules and regulations may be introduced but will they be enforced? And, if so, by whom? The Government? Hardly.

Remember it was the Government’s coffers, which benefited greatly from the vast amount of stamp duty, CGT and VAT earned on every property transaction.

And it was the Government who encouraged the development and purchase of ‘Section’ properties and gave tax relief to those who invested in myriad development schemes, including those unnecessarily constructed in remote rural locations.

And just in case we think for one moment that a change in government might be the solution to our problems, remember that governments are made up of people, voted in by other people, and human nature never changes.

Mr Hurley made reference to “risk management practices” across the financial sector and said that they had to be “improved significantly”.

His remark must rate as the understatement of the century.