Banks accused of fleecing firms in wake of bailout
Monday March 16 2009
BANKS have been accused of "fleecing" businesses with higher overdraft and loan charges since the State bank guarantee was introduced.
According to new Central Bank statistics, the cost of business borrowing has more than doubled in some cases in the first five months following September's guarantee scheme.
Fine Gael enterprise spokesman Leo Varadkar said Irish banks were increasing their mark-ups on loans at the expense of new and existing business customers. "Since the State's bank guarantee was brought in, the margin between the rates at which banks borrow money internationally, and at which they lend to businesses in Ireland, has increased substantially, when compared to the previous two years," he said.
Currently, banks can borrow money in the European money markets at the Euro Interbank Offered Rate (Euribor), which is the accepted benchmark for the market. The difference between the rate they get and the rate they charge to customers is the margin.
According to Mr Varadkar, banks had a 4.42pc margin off the Euribor overnight lending rate in June last year, but increased this to 5.31pc last December. Their margin, which covers the cost of providing the loan and their profit, was 1.28pc for the Euribor one-year rate in June last year, but went up to 3.03pc last January.
Increases
"Similar increases were found in margins for outstanding loans of more than one year, and for new business loans of less than €1m," he said.
Mr Varadkar said the banks had failed to demonstrate good faith to the Irish people.
"The rhetoric from our banks about their support for Irish businesses is not supported by the banks' actions. Rather, it would suggest that they are seeking to pass onto customers the cost of their bad debts," he said.
But the Irish Bankers Federation, which represents the financial institutions here, said the higher borrowing costs for businesses reflected the increased risk of non-repayment.
"The risk assessment of Irish business today is significantly changed to the one that took place 12 months ago. The banks have got to price the money they're lending to those businesses accordingly," its spokesman Felix O'Regan said.
He said AIB and Bank of Ireland had committed to a 30pc increase in their lending to small and medium enterprises in return for the state's €7bn recapitalisation scheme.
"They are very conscious of those commitments and they are working to fulfil them," he said.
But Mr O'Regan said that the banks had to strike a balance between lending to businesses which were viable and non-viable. "Nobody is going to thank them if they are lending to companies which are not there in six months time."
- Michael Brennan Political Correspondent
