Friday 20 April 2018

We need new bank with clean slate free from any toxic debts

Emmet Oliver

FROM the perspective of the Irish economy and Irish customers, Bank of Scotland (Ireland) was the good bank that went bad.

When it first entered the Irish market more than a decade ago, it brought cheap mortgages and longer opening hours.

It also shattered the stranglehold of AIB and Bank of Ireland, offering choice and spreading credit into corners of the economy previously neglected by the incumbents.

But the bank, we now realise, was all about short-term market share gains and unsustainable lending.

In fact, the financial conduct of Bank of Scotland (Ireland) over recent years in Ireland has been nothing short of extraordinary.

For example, the bank had a loan-to-deposit ratio as the crash came of 5 times -- meaning that for every €5 on loan, there was only €1 of deposits backing the loans up, forcing the bank to plug the gap with wholesale funding from other banks. This was the highest level of leverage in the Irish market and far higher than even Irish Nationwide or Anglo Irish Bank.

Apart from the lack of deposits to support its lending, the bank also took a major gamble backing a host of Irish property developers, many of whom eventually landed in major financial trouble, like Liam Carroll and Bernard McNamara.

Bank of Scotland (Ireland) became the fifth-largest lender to the property-development sector and the bank's association with Liam Carroll was one of the most renowned linkages in Irish banking.

The bank was also a big player in mortgages with a 7pc market share, much of it encouraged -- for a time -- by the offering of 100pc mortgages.

Now the bank's €33bn loan book is so toxic the bank has been forced to shift it into another company, to be wound down over several years.

With the bank no longer prepared to stay in Ireland because of limited growth opportunities, one wonders how the borrowers with loans in this company will be handled -- it's unlikely to be with kid gloves.

Foreign banks provided one-in-three of every euro lent by the tail-end of the boom. Consequently, the loss of Bank of Scotland (Ireland) will have a reasonably large impact on borrowers, particularly Small to Medium Enterprises (SMEs).

Other foreign banks could conceivably follow as the opportunities to make money here reduce.

What Ireland ideally needs now is a new bank, one with a clean slate, and unencumbered by bad debts. Such a new entrant would also prevent the Irish banks from excessively raising charges and mortgage rates. But is there anyone out there? Sadly, not at present.

Irish Independent

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