Outgoing Sheehy spells out facts of life to all sides in the NAMA era
AIB chief executive, Eugene Sheehy, left and AIB Chairman, Dan O'Connor leave Leinster House after appearing in front of the Joint Oireachtas Committee on Finance and the Public Service at Leinster House.
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Thursday November 26 2009
IT was refreshing to hear a banker tell it like it really was, yesterday, when outgoing AIB chief executive Eugene Sheehy appeared before the Oireachtas finance committee.
Mr Sheehy, who steps down next week as chief executive, made no bones about the fact that the National Asset Management Agency (NAMA) won't make it any easier for individuals and companies to borrow next year.
His blunt message was that the real function of NAMA was to create a mechanism to stabilise the banking system which may lead to further lending when the banks are out of trouble.
Problem
The money to be handed over to the banks is needed to shore up the bank's own reserves, not to lend to business.
Once those reserves are bulging again, the banks will be in a position to begin lending.
Mr Sheehy did the State some service by spelling this out and puncturing any lingering hopes that NAMA will somehow lead to an immediate resumption of the reckless lending we have seen in recent years.
Mr Sheehy also spelt out the likely effect of NAMA on savers who are currently enjoying rates of around 3.5pc, which coupled with deflation of 6.5pc equates to a real interest rate of around 10pc.
NAMA will end this happy scenario for depositors because it will give the banks the cash they need and reduce the banks' dependence on those who have cash on deposit.
The problem with the debate about NAMA over the summer was that it always skirted around the issue of who would lose out.
In recent weeks, we've seen a few of the losers air their legitimate grievances.
Hoteliers have complained, with reason, that NAMA is distorting the hotel market and forcing well-run hotels into insolvency.
On Tuesday, we saw Irish Life & Permanent complain that NAMA will create "competitive distortions", while yesterday we heard that the interest paid on deposit accounts is likely to fall.
This doesn't imply that NAMA is the wrong solution to the almost insurmountable problems faced by the Government, but it is a reminder that some interest groups and institutions will suffer more than their fair share in the months ahead as NAMA finally becomes a reality.
Denied
Whether small and medium-sized businesses are being turned down by the banks was the main focus of yesterday's committee hearing, but there was more heat than light as TDs maintained viable companies in their constituencies were being denied credit for no good reason, while Bank of Ireland chief executive Richie Boucher and Mr Sheehy rejected the charges.
With many anecdotes and no concrete examples, it was never going to shed much light on this thorny issue that is troubling some businesses.
The two bank chiefs quoted figure after figure to support their contention that their banks are lending happily in the Republic, while their inquisitors appeared completely convinced that this was not so.
There was a rare level of cross-party agreement, with politicians from all parties, and none, disbelieving the bankers' claims.
This is a debate that is sure to run and run but based on what was said yesterday neither side has come to terms with new realities.
Put simply, politicians still appear a long way from accepting that the credit crisis means credit is more difficult to get while the banks appear uncomfortable with the notion that they must explain their actions in excruciating detail while the State continues to pay for their upkeep.
- Thomas Molloy
Irish Independent
