Banks will be judged on how they deliver for people and economy


OPINION:Banks must regain public trust and begin to repay the taxpayer, writes PAT FARRELL

THROUGH DECADES of economic development, the banking sector has played a pivotal role for businesses and personal consumers of financial services in Ireland. Its importance for a small, open economy has been all the more crucial, reflected in its accounting for a major portion of the country’s total services exports.

Against this backdrop, we must acknowledge its actions in recent times have caused a major loss of confidence and trust. People are rightly angry at the banks’ role in the economic crisis. The sector must put matters right and ensure it never happens again.

The political system has had to pick up the pieces and the taxpayer has had to write a very big cheque to help put the sector back on the road to doing the job it is tasked to do for the citizens.

While justified public outrage and criticism will continue, there is an onus on the sector to provide the economy with a stable and sustainable banking service. We need a stable, profitable system to help viable businesses deal with difficult trading conditions and to help consumers facing problems with mortgage and non-mortgage repayments. We also need this so the sector can as quickly as possible repay the Government and taxpayers for their support.

Member banks of the Irish Banking Federation (IBF) are working with the Government’s Credit Supply Clearing Group and other channels to deliver these key commitments.

It is also critically important that the sector responds constructively to the call from the Minister for Finance to become better acquainted with our emerging industry sectors. We are committed to doing all we can to work with member banks and Enterprise Ireland in developing sectoral expertise in the growth sectors of the economy – and to continue investing in the banking services that Irish SMEs trading internationally need.

The sector also has a key role in helping consumers who have problems in managing their debts, mortgage or otherwise. We have worked closely with the State-funded Money Advice and Budgeting Service (Mabs) in developing and implementing the IBF/Mabs protocol on debt management and the IBF pledge on home repossessions. As with the statutory code of conduct on mortgage arrears, the key is early communication between the borrower and lender.

Based on this, the objective is to get a mutually acceptable, affordable and sustainable repayment arrangement. With mortgage debt, this helps avoid legal proceedings for repossession, and the latest statistics from the Financial Regulator confirm this trend.

The Minister and the regulator have set the ground rules. Recapitalisation of our banking system is necessary to create fully functioning banks that drive and sustain economic growth.

A successful future can be best secured with the assistance of a competitive banking sector that is commensurate with the needs of an economy in growth.

The sector also has no option but to price appropriately for risk. An inevitable consequence will be higher interest rates, which have been artificially low in Ireland for some time. For example, the latest comparative data from the European Central Bank shows that, at 2.76 per cent, average housing loan costs here are a full one percentage point below the euro zone average of 3.8 per cent.

The provision of products and services at prices that scarcely cover costs is not sustainable. Unless banks price commercially, they won’t return to profitability and will not be the engine for growth the economy so badly needs – nor will they be able to repay the capital they have received from the taxpayer.

We are in a new era for banking in Ireland.We know that the sector has to prove itself. It will be judged on how it delivers for the people of Ireland and our economy over the coming years.

Pat Farrell is chief executive of the Irish Banking Federation