Wednesday 13 November 2019

Firefighter tackling the inferno in credit sector

On first impressions John Trethowan doesn't strike you as a firefighter. A genial banker yes, but definitely not a firefighter.

And yet the former National Irish Bank (NIB) executive has been fighting fires in the banking sector for much of the last 13 years. A long-time Northern Bank employee, he was parachuted into subsidiary NIB in 1998 to sort out the mess following allegations of overcharging of customers and the emergence of various other malpractices in the bank.

Then, two years after retiring from there in 2007, he was called back into service to fight more fires, this time in the shape of lending to small business in the Republic.

Since the collapse of the housing market three years ago and the near collapse of the Irish banking system that followed, the banks have been roundly condemned for reducing lending to small firms. Stories have been rife of small firms with long relationships with their bank suddenly being told their overdraft was being ended, or the loan they had been relying on was no longer possible.

It was into this world that Mr Trethowan was sent when he was asked to head the new Credit Review Office (CRO) by then Finance Minister Brian Lenihan in 2009.

The CRO has morphed into an office that can be used by SMEs to appeal credit applications they feel have been unfairly turned down by Allied Irish Banks and Bank of Ireland, limited to less than €250,000.

Mr Trethowan is the final decider on these applications, although he has 10 former bankers who review the applications for him. AIB and BoI are the only two lenders formally covered by the office but he has an informal relationship with Ulster Bank as well.

Since beginning work with the banks, the parallels between where NIB was in 1998 and AIB is today are clear as far as he is concerned.

"The way it was in National Irish then has to be akin to what it must feel like in AIB at the moment, where everything is coming at you all the time.

"Everyone had an opinion on what needed to be done to fix the bank and you had the likes of the Revenue Commissioners, gardai, High Court inspectors and the Central Bank all investigating, so people were under siege in a way."

Mr Trethowan arrived in Dublin as a middle manager tasked with "fixing the bank" and in many ways it was the making of him. By the time NIB was sold in 2004 with goodwill, Mr Trethowan had gone from being effectively a nobody to one of the more respected figures in Irish banking as chief executive of NIB.

After a stint as president of the Institute of Bankers, the Belfast native had planned to retire. But he was called back to head the CRO the weekend before the December 2009 Budget.

"I had been speaking to [Department of Finance secretary general] Kevin Cardiff informally about the banks' issues at the time and then I got a call asking me to do this.

"It was a clean sheet of paper and it was one of those calls that was pretty terrifying because there was no template for the CRO. I had to come up with it more or less from scratch."

Once appointed, meetings with the various small firms' bodies followed, as did meetings with AIB and Bank of Ireland. There was no hostility from the banks, he says. Indeed, his opinion of the banks is instructive, and steeped in realism.

"The goalposts for the banks keep moving because the capital and risk requirements are increased, followed by the liquidity run at the end of last year.

"When we do formally meet banks and go through their mortgage and SME lending targets, we ask them if they are committed to that mark and we get the same answer: 'This is our core market'.

"Of course there are challenges, you'd be mad not to acknowledge that, but those banks are going to have to find capital and deal with their liquidity problems while having SME lending as a core of their business.

"They may pull back from elsewhere but they both have Irish in their name. This is their market and they're going to survive or fail by this market."

That realism comes through when asked about the cases he has worked on as well. The CRO has been criticised for the number of cases it has adjudicated -- only 51 in the last 10 months. Proof, its detractors say, of an ineffective office. How can it be doing its job when so few applications reach the office? That only tells half the story though.

"That is the formal application number but my staff get phone calls every day from businesses asking for help. It can be an issue that can be dealt with over the phone but sometimes it takes more than that -- we have twice sent a reviewer in to mediate between a bank and a business. None of those count as formal applications to us so they don't go into the quarterly report. The report is the tip of the iceberg really. There is a lot more going on beyond it."

Mr Trethowan has not yet spoken with the new Government but one thing the Government has pledged to bring in is a loan guarantee scheme (LGS) -- something he has voiced his opposition to in the past.

"There have been one or two cases that I've seen where an LGS might help but it will not be a cure-all for lending woes.

"The very first question asked if someone applies for the LGS will be 'is the business viable?', if it isn't, then the LGS won't cover it. If it is, why won't the bank do the loan?

"There's been a loan guarantee in the UK for the last 20 odd years and they're dealing with the same lending questions there as here."

Opinions like that have led to Mr Trethowan being branded a "banker looking after the banks", something he refutes absolutely.

"That's something I've heard and it's something I completely reject.

"If we uphold a bank's decision we always try to provide some sort of remedial action to the borrower but, before it goes to the bank, we have our findings reviewed by a chartered accountant, two executives from a County Enterprise Board, and one of the major SME trade bodies as a panel which completes these overviews. It is a good check on us and there is full confidentiality so there is no question of me looking after the banks."

The CRO is in a strange place. When banks start lending properly again, it will not be needed. It's possible that moment may not be a million miles away.

"There are still issues for sure, but the lending rates are more or less in line with what they should be. Mazars accountants did a report last year on SME lending and found the decline rate was about 20pc. In my experience, that's about par for the business.

"The actual amount of lending is less now than four years ago, but the economy is much, much smaller as well."

I ask him if, given the growing number of people with opinions on the banking sector, reasonable voices can get drowned out. He agrees.

"Sometimes our voice gets lost but we're just doing our job. I work on and I'm comfortable we're doing what we were asked to do."


John Trethowan Head of the Credit Review Office

Age: 57

Status: Married to Vivien, one son.

Education: Royal Belfast Academic Institute (aka 'Inst'), Ulster Business School.

Career: Joined Northern Bank the day after he left school, stayed there 26 years and with NIB for nine years.

Pastimes: Golf, model-making (Airfix etc)

Hobbies/interest: Sits on the boards of Health Trust and Translink. Also chairs a committee on prisoner assistance for the Department of Justice.

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