Banks told to broaden lending
BANKS will be told they need to diversify their earnings and start lending into a far wider range of sectors in a key policy paper to be unveiled next week by the Financial Regulator, Matthew Elderfield (right).
The boom left Irish lending staff concentrating at times almost exclusively on commercial property deals. There is now a concern that the same staff have only limited exposure to lending into hi-tech and export-led industries.
And in a reversal of what happened during the boom years, the idea of capping the amount of lending into areas like property will come back on the table and be debated in the paper. Irish banks traditionally had "sectoral limits'' imposed on them, meaning they could only lend a certain amount into each sector.
But the governor of the Central Bank Patrick Honohan recently remarked that while these limits were not scrapped during the boom years, they had "fallen into disuse'' and were often evaded. Mr Elderfield's paper will discuss the idea of placing limits back on the banks, but another approach of requiring the banks to hold more capital if they become too concentrated in one area -- like property -- is also expected to be discussed, with the aim of stimulating debate.
Some observers of the Irish bank sector claim the skill set of some staff is too narrow. Getting the market value of the security in a property deal requires one set of skills; analysing the cash flow of a company demands another set of skills.
It is understood the paper will talk of the need for banks to upskill staff and start getting better at lending into other sectors, neglected during the boom years. Lending to renewables and healthcare, for example, are regarded as a priority by the Government.
The paper will also take a fresh look mortgage lending and will question whether the banks have sufficient funding to finance the kind of mortgage lending they want to make in future. The regulator is believed to be concerned about a "mismatch'' between long-term mortgages and short term funding. There also remains a concern over credit standards and whether banks are still not properly analysing the 'true' income of borrowers.