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Thursday 26 April 2018

Richard Curran: The traditional bank manager has become an endangered species

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John Trethowan, head of the Credit Review Office, has reservations about banking’s direction
Richard Curran

Richard Curran

Finance minister Paschal Donohoe is going in search of a "middle way" when it comes to how banks interact with their small business customers. Donohoe wants to get a briefing from the banks on how the closure of branches may be affecting the levels of credit sought by SMEs.

His comments follow some strong words from the head of the Credit Review Office, John Trethowan, who said bank officials are making loan decisions sitting behind desks rather than face-to-face. He warned the closure of bank branches could be the cause of lower demand for SME lending.

The truth is that banks have been moving steadily towards "desk-based" lending decisions for years. The closure of branches has probably accentuated the downside of that more centralised approach to lending decisions.

It seems the old-style bank manager is not so much extinct, as an endangered species.

After the crash, banks were under the kosh for not lending. Now the bigger problem seems to be a lack of appetite for credit, especially when it comes to SMEs. Recent studies have shown small business owners are not approaching the bank for loans.

It may be that it is too expensive with the rip-off rates SMEs are being charged, or firms with legacy debt issues from the boom know they will be turned down.

Banks have been trumpeting their growth in business lending for some time, but they neatly put farm agri-business into that category now to beef up the figures. Farmers have been bigger borrowers in recent years, but they have the collateral as they invest in land, equipment and working capital to grow the likes of dairy farm operations.

Trethowan may have hit the nail on the head when he suggested that a lack of branches make small businesses less likely to pop in for a chat and a loan.

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The revolution in banking has also meant, the local branch manager, who may know the businessperson very well, doesn't have the lending clout they once had. Academic studies into how banks make lending decisions have shown the shrinking role of the face-to-face relationship between bank manager and customer.

Finance is more a commodity and banks are more like utility companies. One academic writing a PhD on the subject at the University of Salford talks about the concept of the "depersonalisation, the move from case-to-case judgements to rule-bound impersonal decisions, and the disembedding of banking, the detachment of service provision from social networks…".

"The agency of branch managers as gatekeepers, which lies at the intersection of skill, authority and autonomy, is central in making services embedded and personalised." This is all well and good, but banks are no longer run on that kind of model anymore. The technological revolution that is driving internet banking, which many customers want, has also affected how and when bank managers meet their customers and what kind of discretion they have in loan decisions. We might not want to go back to the "good old days" of the local branch manager chatting in the golf club and providing preferential treatment for customers he knows personally.

Equally, moving to a system where relationships between faceless anonymous lending officers and small business owners is the norm won't always yield the best results for either the banker or the SME owner.

That is why Donohoe says he wants to see how fewer branches might be affecting the appetite for borrowing. "We have to get the balance right between having branches present within communities to allow direct engagement between them and potential customers, and the work that banks have underway to try and make themselves more efficient", he said.

As Minister for Finance, Donohoe is the biggest shareholder in Irish banking (72pc of AIB, 15pc of Bank of Ireland and 75pc of PTSB) and he knows how important it is for those banks to do things efficiently. Otherwise we won't get our money back as taxpayers.

Since the height of the boom around 200 bank branches have closed across the main Irish banks. In the North, 42pc of bank branches have closed since 2010.

Donohoe wants them to find a balance. Good luck with that Paschal.

McKillen to build up financial muscle at Press Up group

When it comes to socialising in Dublin, it seems Paddy McKillen's Press Up Entertainment group wants to own the night. And it has the venues to do it.

You could start with a pre-movie cocktail in its Sophie's rooftop bar in Harcourt St followed by a meal at Angelina's near Baggot St Bridge or a more casual Wowburger. Then head for a film at the Stella Theatre in Rathmines and stay overnight at The Dean Hotel.

McKillen, and his son of the same name, have put together quite an array of hip venues in busy and lively parts of town. But clearly McKillen isn't finished yet and has plans to continue to expand the group by developing other venues.

That is why he is reported to be considering an IPO or the sale of a stake in the group, which could raise up to €60m.

Large scale pub groups in Ireland have been done before and with mixed results.

But the McKillen operation brings quite a bit of imagination and variety to the 30 or so venues in the group at the moment.

In the past, larger chains in Ireland tended to be just super pubs which generated lots of cash but also devoured lots of debt in the build-up phase which banks were throwing at companies back in the boom. Press Up looks like it could be a very large group in the making, and McKillen wants to take on some fresh equity to ensure it builds up the scale he is looking for.

He is a pretty private business person who has a number of unlimited liability companies in his stable which means he doesn't have to file accounts. Moving to a float brings a lot of attention, potentially vociferous shareholders if things don't go smoothly and tonnes of bureaucracy. Selling a strategic stake might involve less hassle.

Chinese cash does the talking from Beijing to Barryroe

Providence Resources has been a long time knocking on doors to land a farm out deal for its Barryroe offshore project. Timing went against it when it came to oil prices and the general sentiment towards the sector.

Oil prices have improved, but farm out deals are still pretty hard to come by. So it was good news for Providence that it got its deal with Chinese company APEC, subject to formal regulatory approvals. It is a good deal for the Chinese who will get a 50pc interest in the field. APEC will provide Providence and Lansdowne with a non-recourse loan to fund their share of the costs. The loan will only be repayable from Barryroe cash flows when the oil starts flowing.

The Chinese did not have to pay upfront to get involved and only lose their investment, i.e. loan provision, in the case of project failure, Davy Stockbrokers said. However, by ensuring Providence can get the field drilled - and the Chinese will use their kit to do that - the Irish company can retain a sizeable stake in what could become a working oilfield.

Davy suggests the chance of developing the field is now 75pc and has put a value of 21p per Providence share on phase one of Barryroe.

The market still has reservations. Providence shares jumped from 9pc to 12pc before falling back towards 10p again.

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