Tuesday 22 October 2019

Irish Nationwide too busy 'racing from crisis to crisis' to set policy on high-risk loans

INBS was nationalised in 2010
INBS was nationalised in 2010

Shawn Pogatchnik

 Irish Nationwide never established a formal credit-risk policy on high-risk “profit share” loans because the bank was too busy “racing from crisis to crisis”, the former credit risk manager of INBS told a Central Bank inquiry yesterday.

Darragh Daly, who served as the bank’s first credit risk manager from 2006 to 2009, told the INBS Inquiry his job was excluded from having any role in assessing risk on new loans - and never drafted any specific policy for the bank’s multi-billion portfolio of profit-share loans.

Such loans provided 100pc financing to developers to acquire property with no repayments due until the asset was sold - when INBS would collect 25pc to 50pc of the presumed profit. The current stage of the inquiry is seeking to identify whether INBS had any formal rules for issuing and monitoring the performance of these loans, which were unsecured beyond the worth of assets purchased.

When asked by inquiry counsel Donogh Hardiman what role he played in minimising INBS exposure to risks in new loans from 2006 onward, Mr Daly replied that his newly formed credit risk department had no such role.

“Credit risk was excluded from any instances of new lending on commercial,” Mr Daly said. “We wouldn’t have been a party to either any new lending that was being made or the parallel creation and operation of profit shares.”

The inquiry chair, Marian Shanley, intervened to question whether she had heard Mr Daly’s remark correctly.

“Sorry ... can you say that again? I think I missed what you said. You’re saying that (the) credit (risk department) was excluded?” Ms Shanley said.

“From new lending,” Mr Daly replied.

“Why was credit risk excluded from new lending?” asked Mr Hardiman. “Credit risk is relevant to new lending by its nature, is it not?”

Mr Daly, who had overseen INBS residential home loans from 2002 to 2006, said once he was appointed credit risk manager his workload focussed chiefly on documenting the existing state of the INBS commercial loan book. By 2006 this had ballooned to above €8bn, a majority of that in the form of profit-share loans.

He said documentation within the bank often wasn’t clear on whether the terms of a particular commercial loan included a profit-share agreement at all. As a result, he said, his job involved “making sure that profit share arrangements were properly recorded and that loans that had profit-share arrangements were flagged as such.”

When asked why he had never drafted any credit risk policy specific to profit-share loans - a recommendation made by INBS internal auditors since 2004 - Mr Daly said would have been up to the bank’s two top figures, chief executive Michael Fingleton and director of finance Stan Purcell. The bank, he said, didn’t appear to have any formal rules on assessing the credit risk of commercial lending at all, never mind its exposure to profit-share deals.

“I would have liked to have thought there would be a planned approach,” Mr Daly said. “But invariably the way it actually panned out (was), you were racing from crisis to crisis in terms of whatever the particular issue was.”

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