Business Irish

Wednesday 13 December 2017

Two big banks clash with credit office chief over lending 'failures'

Peter Flanagan

Peter Flanagan

A ROW has broken out between the so-called "pillar banks" and the Credit Review Office (CRO) over the amount of money they are lending to small firms.

Meetings between Bank of Ireland & Allied Irish Banks with CRO head John Trethowan have been tetchy, with a number of "robust conversations" between the two sides since last month when Mr Trethowan said he was "disappointed" with how little the banks were lending.

The CRO was set up by the Government to adjudicate on loan applications made by small and medium enterprises that have been rejected by AIB and Bank of Ireland.

Both banks are thought to have been "incredulous" at the findings of the CRO's most recent quarterly report, which called for the banks to increase their "risk appetite" in an effort to get the small business sector moving again.

The report, which covered lending by the two banks to the SME sector between February and April, called for the lenders to take on more risk when making credit available to the sector.

"I am 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," Mr Trethowan wrote in his report.

He also criticised the banks much more directly than he had before, claiming he observed a "lack of primary focus on assessing performance fundamentals in banks' processing of SME credit applications".

"(It appears the) banks' priorities have shifted to attempt to excessively squeeze out credit risk in their assessment in too many cases.

"This is particularly the case in (property, construction and hospitality, and in) micro enterprise and the smaller end of the medium business sector," he added.

Those words set off alarm bells in the executive offices of both banks, who have vowed not to return to the excessive lending of the boom.

The banks have been mandated to make credit available worth €3.5bn each over the next 12 months, but that includes restructuring current loans and overdraft facilities.

Trade groups including ISME and the Small Firms Association have repeatedly accused the banks of not lending to viable small businesses, but the institutions have indicated there is little demand for credit from the SME sector.

Mr Trethowan regularly meets with executives at the two lenders which are formally covered by his office, while he has met Ulster Bank over its lending practices, although they are not covered by the CRO

Bank of Ireland said it had "ongoing conversations with the CRO".

An AIB spokesman said the bank "has continuous engagement with the CRO given its role in the SME market".

Irish Independent

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