Bankers back their credit performance

Mark Cunningham of Bank of Ireland: Addressed Oireachtas committee

Bankers have defended themselves against allegations of high interest rates in Ireland.

“Any suggestion that we are ripping off the people of Ireland and that our European counterparts are being more munificent is not correct,” said Mark Cunningham, director of business banking at Bank of Ireland.

He was one of the bankers addressing last week’s joint Oireachtas agriculture committee debate on the Agriculture Cashflow Support Loan Scheme.

He said upfront loan fees and mutual guarantee and co-operative schemes in European markets distort the picture.

Also, over 85% of lending in European markets is for one year or less, whereas over 48% of lending in the Irish market is for more than three years.

Over 15% of lending in Europe comes with the benefit of mutual guarantee schemes, which we do not have, said Mr Cunningham.

Ken Burke, AIB’s head of group credit products, said AIB offers working capital through a farmer credit line at rates as low 3.825%.

He revealed agriculture has been the largest sector to avail of their SBCI loans at 2% below the standard variable loan rate.

Despite competitive interest rates at the banks, there are large levels of merchant debt among farmers, said Mr Cunningham.

“We have constantly indicated that they can refinance that more cheaply with the bank.

“Average merchant debt trades at probably 1.5% per month, and we encourage farmers constantly to look at refinancing it with the bank with normal banking facilities.

“For a variety of reasons, they chose not to do so.

“Consequently, a number of farmers have not chosen to refinance merchant debt under the SBCI scheme.”

Mr Cunningham said: “Many of the co-operatives may be seeking a way in which they can add additional terms and benefits to their milk processing or milk supply agreements by trying to entice farmers in supplying credit to them.

“We have certainly seen it in the motor trade, the furniture trade and the store trade.

“It is more indicative of the co-operative sector coming to terms with the rest of the merchandise sector.”

AIB’s head of agriculture, Anne Finnegan, told the Oireachtas agriculture committee debate that overall lending to the agri-sector peaked in the first quarter of 2009, on the back of the scheme of investment aid for farm waste management, at €5.2bn.

“At this point, we are 42% down on that level of debt in the sector.

“That is the overall context in which all farmers are operating.

“They have paid down debt substantially.”

Almost 40% of farmers are believed to have no bank borrowings, but four out of ten plan to invest in the next three years.

She said AIB maintains a good long-term outlook for agriculture, and confirmed it has experienced lower levels of credit difficulties than other SME sectors.

“Despite the challenging price environment experienced by most farmers in 2016, AIB’s new lending to farmers increased marginally on 2015 levels.”

On Brexit , she said it is generally accepted that the greatest Brexit impact will be on the meat sectors, most especially the beef sector, cheddar manufacturers and consumer food businesses.

“As price takers, farmers have no influence on external events that may have an impact on the prices they receive.

“Their only option is to look inside the farm gate and to seek to make their enterprises as efficient and resilient as possible.”

Dr Ailish Byrne, Ulster Bank’s senior agricultural manager, said agriculture accounted for 22% of their SME business lending in quarter one of 2017.

Eddie Cullen, a managing director in Ulster Bank’s commercial banking division, said their last loan sale in 2016 included some farmers, but they did not sell any debt that farmers had borrowed for the farming enterprise.

“The farm debt we sold as part of that last loan sale was farmers who had off-farm debt, typically commercial real estate.”

Ken Burke of AIB said some elements of their agri-portfolio went “off balance sheet”, and took on other forms of investments.

“We are dealing with those as sensitively as we can,” he said.

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