Leading analysts and indeed some key Irish businessmen, such as Philip Lynch, have said banks have to tackle the capital issue and get back to the job they are there to do — to finance the Irish economy and those active in it.
Mr Lynch caught the mood of the country in an address to the IFA when he said: “Banks are not lending to each other, they are not lending to customers. This is having an increasingly negative impact right across the Irish economy. Businesses of all sizes and in all sectors are being adversely affected.
“The medium-term consequences of this are a spiral downwards in economic activity. The re-capitalisation of the banks is an urgent matter and the sooner it is addressed the less damage will be inflicted on the very many good and strong businesses that have been trading profitably and are providing excellent employment.”
Since this crisis bit, banks so far appear more concerned about protecting the interests of existing shareholders, rather than addressing the capital injection crisis, which would free them to start lending again to the business community and consumers.
Bank of Ireland’s Tier 1 at 6.3% is up from 5.7% six months ago but still well below the 8.5% region, now regarded as essential among many of its peers.
In his comments yesterday Mr Goggin refused to say what the bank’s key capital ratio should be.
That was a matter for the Financial Regulator to decide in consultation with the bank, but he gave no indication that this was a matter under serious consideration that would be resolved in a matter of weeks.
An outside analysis yesterday said the bank needed €3 billion plus in fresh capital to get out of its present dilemma.
Alex Potter of Collins Stewart said apart from the need to tackle the funding issue, the bank’s bad debt assumptions were too optimistic.
Bad debts will deteriorate once unemployment starts to rise and borrowers start to struggle with repayments, he said.
The deterioration in asset quality is widespread though mortgage bad debts are low at present. “We believe this will worsen as the effects of fast-rising unemployment are felt,” he said.
But Brian Goggin says analysts have got the wrong end of the stick and capital requirements vary depending on the nature of each bank.
But the message from Philip Lynch and from analysts is clear — the banks need to tackle the capitalisation issue and stop playing games with the economy.