‘No risk’ approach of pillar banks under fire

The lack of competition in banking has led to a failure of the two pillar banks to take calculated risks on lending to new businesses according to the credit reviewer John Trethowan.

“The banks don’t have to try too hard to hold on to their customers at the moment,” he said.

Taking a contrarian view now would be a great time for a new player to come into the banking market as most of the bad debt has emerged. If a new player was to come in, with their eyes open, they could do very well lending to Irish business, he said.

Mr Trethowan said banks were supporting long term existing customers viewed as low risk, but were failing to provide credit to new businesses.

“I have observed that the two pillar banks are largely being supportive of medium and low risk new lending proposals from well established SMEs and farms which already bank with them,” he said.

“I am however disappointed that there is not more evidence of support for ‘enterprise risk taking’ on new and increased lending in the banks’ current lending policies. This would suggest that their current risk appetite needs to be reassessed in order to support economic and employment recovery.”

Mr Trethowan said the banks’ focus had shifted from providing lending to SMEs on the basis of their business fundamentals, to attempting to squeeze out any risk from the banks balance sheets. This practice is particularly evident in the property, construction and hospitality sectors. The credit review office has upheld 60% of borrowers’ appeals, protecting over 600 jobs, many in these sectors.

Chambers Ireland deputy chief executive Seán Murphy, said: “The fact that the CRO has overturned 69 bank refusals and supported 683 jobs since its establishment highlights its importance for the SME sector. While the report’s observations that banks are largely supportive of medium and low risk new lending proposals is a positive,

“Trethowan’s concern that their “current risk appetite needs to be reassessed in order to support economic and employment recovery” is a cause for concern.”

AIB have said they will do their best to increase lending to SMEs.

“We understand the importance to the Irish economy of new credit and its impact on economic recovery and in this regard we have set ourselves the target of increasing new customer lending we inject into the Irish economy by 20% in 2012…

“We want our customers to approach our branches and commercial centres to discuss their requirements. This will allow us to help them make formal credit applications.”

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