Saturday 24 February 2018

Noonan urges Central Bank to heed Kelly's warning on SMEs

Minister Michael Noonan
Minister Michael Noonan

Colm Kelpie and Donal O'Donovan

Finance Minister Michael Noonan wants officials at the Central Bank to talk to economist Morgan Kelly to find out why he is so concerned about small business loans.

It follows a warning from the UCD lecturer that a large number of small firms would go out of business as a result of this year's stress tests.

Mr Noonan said the State's two main banks had been tackling their bad business loans and the Central Bank was happy with the progress being made.

Speaking in Brussels last night, he said Mr Kelly's views had to be taken seriously because of his track record in predicting the housing crash.


"What Morgan Kelly says has to be taken seriously. He was correct before when nobody else was and I think if the Central Bank was to make contact and access some of the data that is underpinning his speech, that would be helpful,'' he said.

"I still would like to examine Morgan Kelly's views in detail. Maybe if the Central Bank, who have the primary responsibility here, would contact him, if they could get together and have a conversation about his concerns, it would be helpful."

Mr Kelly was among the first to warn of the over-heating property market in 2007, but in a lecture he said the crisis had now shifted to the small and medium enterprises (SME) and mortgages sector.

It had been estimated last year by Central Bank's Fiona Muldoon that about half of the €50bn owed by small firms was in arrears.

Mr Noonan, however, said Bank of Ireland had restructured about 90pc of bad SME loans and AIB had managed 65pc.

The Central Bank, he said, was satisfied that progress was being made.

And the head of the Central Bank Patrick Honohan said last night that banks here would not need extra cash following this year's stress tests.

"I don't see anything that should raise particular concerns," he said.

But he said the test would be tough, and he could not guarantee banks won't need more capital following the probe.

Senior executives at the two main banks also insisted they were on top of the problem of businesses weighed down by property debt.

"There is no time bomb," said Bank of Ireland's head of lending to small business, Gerry Prizeman, after the Irish Independent asked if bad business loans were a ticking time bomb for the main banks.

Upcoming bank stress tests are about assessing whether lenders have adequately 'provided' for loans – that is, set aside cash to cope with losses – not about individual cases, he said.

His opposite number at AIB, John Irwin, said the bank knows the scale of the issue and has been working with business customers to come up with "pragmatic solutions".

Mr Noonan made his comments at a meeting of eurozone finance ministers in Brussels.

Ministers from all 28 member states will gather today as European negotiators and the European Parliament try to reach a deal on common rules for dealing with failing banks – a key pillar of banking union.

The proposed banking union, and the thorough clean-up of banks' books that will accompany it, is meant to restore banks' confidence in one another and boost lending.

See Business section & stephen kinsella, p24

Irish Independent

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