Friday 24 November 2017

Banks should boost 'enterprise risk taking' -- credit review chief

Maeve Dineen

FOUR years after an overzealous appetite for risk brought the country's banking system to its knees, the head of the Credit Review Office, John Trethowan, has called on the main banks to boost their risk-taking appetite again.

Mr Trethowan, who will give his eighth quarterly report this morning, said he was "disappointed" that there is not more evidence of support for 'enterprise risk taking' by the banks.

The banks had now "excessively" squeezed out credit risk when assessing loan cases.

"I am, however, disappointed there is not more evidence of support for 'enterprise risk taking' on new and increased lending in the banks' current lending policies. This would suggest their current risk appetite needs to be reassessed to support economic and employment recovery," he said.

The challenge for banks is to develop approaches which can provide credit for those businesses within the SME sector, whereby they can be seen to lead rather than follow economic recovery; this relates particularly to still viable SMEs within trade sectors which have been worst affected by the downturn -- property, construction and hospitality.

"This is evidenced by our opinions upholding 60pc of borrowers' appeals, with up to 600+ jobs protected," he added.

The credit review chief criticised the banks for showing "a lack of primary focus" on assessing performance fundamentals in their processing of SME credit applications.

"Banks' priorities seem to have shifted to attempt to excessively squeeze out credit risk in their assessment in too many cases. This is particularly the case in the challenged sectors mentioned above, and in micro enterprise and the smaller end of the medium business sector," he added.

While he acknowledged that this was a difficult lending environment for lenders, the banks now require a "high level of capability and experience" by lending officers.

"Given that the large banks have all announced restructuring plans, it is essential that their boards ensure that adequate capabilities will remain in place to deal with current and future forbearance requirements, as their lending books continue to be scrutinised by the regulator and troika."

Mr Trethowan expressed concern that the withdrawal of many of the foreign banks from the SME and farm markets will impact on competition. AIB, BoI and Ulster Bank are the main banks now left in the country to supply credit.

"The lack of a greater number of significant and active competitors presents the undesirable prospect of consolidation and a lack of proactivity to support economic recovery," he said. He added: "Over the past three months, the Credit Review Office has received 44 applications from SMEs who have been refused credit by AIB and Bank of Ireland, the two pillar banks."

Irish Independent

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