Risk-averse banks may refuse credit, warns Lenihan


THERE WAS a danger that banks had become too risk-averse and were refusing credit when the business was in a position to repay the loan, Minister for Finance Brian Lenihan told the Dáil.

“There is also a danger that, starved of cash, the banks, in any event, are not in position to afford adequate credit,” he added.

Mr Lenihan said it was clearly in the interests of the banks to lend to small and medium-sized enterprises who would be able to repay the loans.

“That is the business of the banks and they derive their income by charging interest on the credit provided,” he added.

Mr Lenihan said he was amending the National Asset Management Agency (Nama) Bill to ensure that there would be a freer flow of credit to viable businesses and if necessary, to other sectors.

The amendment, he added, permitted the issuing of guidelines relating to the review of decisions of participating institutions to refuse credit.

It would be possible for instance to designate a pool of lending that would be available to an appeal body to directly provide credit in the event of a refusal.

The report and final stages of the Nama legislation were passed in the Dáil last night. The Government won two divisions, by 77 votes to 74 and 77 votes to 73. The Seanad will start its debate on the legislation on Monday.

Earlier, Tánaiste Mary Coughlan, on the order of business, defended the 8pm guillotining of the legislation, adding that almost 86 hours of parliamentary time had been devoted to its various stages.

Mr Lenihan told the House that banks were imperfect institutions, capable of mistakes and businessmen and women were entitled to be sure that their applications were given a proper hearing.

“It is clear, therefore, that there is a need for an appeal mechanism to review decisions of the banks in this area,” he added. “This is a complex area and it needs to be teased out with the banks.”

His objective, he said, was to ensure there were mechanisms in place with a strong input from outside the institutions, to allow potential borrowers a right of review where credit was refused.

Discussions were ongoing on how this could be best achieved, said Mr Lenihan.

Fine Gael finance spokesman Richard Bruton said he welcomed the Minister’s indication that his guidelines to the banks would cover declined cases.

He added that the Minister had the scope to do something more constructive for homeowners.

Labour spokeswoman Joan Burton said she still believed that the Minister was foolish not to be tougher with the banks.

“He has a once-off chance, although there is likely to be another opportunity when he is to put large capital injections into both banks,” she added.

She urged the Minister to show “that he has legitimate demands of the banks” to favour ordinary customers, small and medium enterprises, first-time buyers and homeowners.

Sinn Féin’s Arthur Morgan said the Minister’s amendment would give him a significant opportunity to bring forward fairly enabling guidelines. However, he would like to hear more about them, he added.