IRISH BANKS may be open for business but are they willing to do business? The answer is no, at least to judge by the angry response from many of their disappointed customers; those business and personal borrowers who have been denied loans. Fine Gael finance spokesman Richard Bruton shares their negative view of the banks’ current lending practices. He too finds no evidence that banks are routinely extending credit to businesses and mortgage holders. This is some seven months after the Government stepped in to guarantee the banks’ deposits and liabilities and, more recently, after both AIB and Bank of Ireland – which accepted a €7 billion recapitalisation by the Government – have promised to increase lending in return for that public investment.
The taxpayer remains the ultimate guarantor of the banks and, through the €7 billion direct investment in these banks, the taxpayer has become their largest single investor. Certainly, the banks’ response to the generous financial support from the public has been disappointing. The Government promised that an independent group would monitor and report on how banks were operating credit facilities. As yet, no report has been issued and Mr Bruton claims the banks have raised their interest margins and imposed higher fees and extra charges for new loans.
A Central Bank survey, which collects data on different loan categories – to business, households and consumers – bears out his claim. The survey of five Irish banks, as part of a euro zone analysis, found that they did tighten their lending standards in the January to March period. The reasons given for more stringent credit conditions on loans ranged from an increase in their cost of funds, to balance sheet constraints, to greater risk aversion in an economic downturn. The Central Bank noted that while State guarantees and recapitalisation support have helped banks to access wholesale funding, access to those funds remains challenging and conditions are unlikely to change in the short term. The banks, clearly, are more concerned to shore up their balance sheets against defaulting loans.
So far the Government has failed to convince banks to lend more. And it has also failed to reassure the public that the banks are operating credit facilities in a fair manner by publishing the review of the independent group. The public, having borne the financial risk in rescuing the banks, deserve better treatment, both from these financial institutions and from the Government.