Sunday 16 December 2018

Comment: No surprise banks look out only for themselves

Stock photo: Reuters
Stock photo: Reuters

Donal O’Donovan

There is an adage that there are two sure-fire ways to lose a friend; one is to borrow, the other to lend. The banks lost their friends a long time ago.

The reasons for the cooling in relationships are manifold: the crash, a €65bn bailout, a catastrophic lending spree, closure of branches across the country, and a scaling back on services.

They completely overplayed their hands inventing concepts like "air money" buying real assets leveraged off worthless ones and when the house went up in flames the taxpayer was burned. The banks passed on the bill for the damage and reopened in business-as-usual mode.

There was virtually no sanction for the squillions lost, no punishment for the Neroesque profligacy. There were no new customer arrangements put in place, no guarantees to protect services, no minimum requirements.

So we probably ought not be unduly shocked by the stinging criticism meted out by the State's Credit Review Office yesterday for their failure to help small business and farmers.

The office suggested that their approach was actually restrictive and even harmful and could result in some of them even going out of business.

According to John Trethowan, the office's head, perfectly viable businesses, whose loans were sold to vulture funds, faced difficulties in getting finance to allow them to pay off those debts.

The banks place a loan in arrears if there is just one missed payment. The whole enterprise could then be put at risk for the want of temporary funding. Firms can't get finance elsewhere because their security has been undermined.

The watchdog also said it has seen many cases, particularly farms, where the borrower has worked hard, and has invested time and their own cash in building up the business/farm.

However, when they do ask to borrow, the Credit Review Office has observed that banks are mainly focussed on the last few years profit and loss performance. Such ‘desktop views’ fail to recognise forward potential earnings from self-investment.

"We frequently find that a visit from the banks’ own farm specialist is required before the potential from the previous self-investment is recognised. However, such visits and assessment are normally only available at a higher level of funding request," it said.

As banks prepare to off-load billions worth of mortgages to vulture funds the Government, a major stakeholder in our banks, needs to take a hard look at whose interests are best being served.


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