Sunday 25 February 2018

Loans to directors of banks don't always go bad

LOANS to bank directors in this post-Anglo era are very much frowned upon in polite society. But they are not banned and are not illegal under company law, as long as they do not represent more than 10pc of the "relevant assets" of a company.

The figures this week about the Bank of Ireland's director's loans throw up some interesting issues. For example not a single loan is behind on its repayment schedule and none are impaired, including those of chief executive Richie Boucher.

The Bank of Ireland directors have also lodged offsetting deposits, thereby giving the bank additional comfort that loans will never go unpaid. But should bank directors take loans from their own institutions at all? Maybe a blanket ban would go too far -- most of the loans bank directors have these days are for plain vanilla mortgages.

The problems at Anglo were that so much of the loans were extended to buy Anglo shares or participate in Anglo-backed investment property plays.

One way to allow some level of loans to still exist would be to restrict them to mortgages for primary residences, and force directors to go elsewhere for funding for other investment opportunities, which are by definition more risky.

But ultimately the problem with director's loans is that everyone can think of lots of reasons why they shouldn't happen, but very few reasons why they should.

Irish Independent

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