IBF Assessment of Central Bank Lending Data

The Irish Banking Federation (IBF) notes publication today by the Central Bank of data on trends in business and personal credit and deposits.

At just under €565 million, new gross lending to SMEs in Q1 2011 stands at a similar level to that recorded for Q1 2010.  The year-on-year decline of just 3.4% is instructive, when account is taken of the relatively poor level of activity in the economy overall in that same period.

At €119.6 billion, the total credit advanced to Irish private households in Q1 2011 shows a similarly modest year-on-year decline of 3.3%; and only 2.6% in the case of loans for house purchase.  Again this is significant against the backdrop of the economy’s performance in that period.

The banking sector remains fully supportive of viable businesses and of the personal sector where repayment capacity exists.

Note: The Irish Banking Federation (IBF) is the leading representative body for the banking and financial services sector in Ireland, representing over 70 member institutions and associates, including licensed domestic and foreign banks and institutions operating in the financial marketplace here.

Remarks by Pat Farrell, Chief Executive, IBF at the annual FIBI Lunch

Commissioner, Ladies and Gentlemen,

The latest publication of the influential Global Financial Services classifies Dublin for the first time as a Global Diversified financial centre alongside Paris and Amsterdam.   Our challenge now is to move to the next and highest category of Global Leaders occupied by a small group including London, New York and Hong Kong.  When asked what centres would become more significant in the next few years, the survey participants, all leading global practitioners,  ranked Ireland 6th out of 45,  a clear indication of their long-term confidence in our future and a good basis on which to positively develop the IFSC to the next stage.

A new strategy for the IFSC is in progress which, we believe, has the potential to deliver thousands of new jobs in international financial services sector over the coming years.  Shortly you will hear from our Chairman, Tom Young, about the contribution that our sector continues to make to the economy.  He will also speak of both the opportunities and the challenges that face you as industry leaders seeking to sustain and grow your businesses.

An essential enabler of success is the presence of an internationally respected, properly-resourced regulatory system operating to the highest standards.   In this regard we welcome the undoubted progress that has been made with the establishment of the new Central Banking Commission with its greatly expanded powers and resources.

Restoring Ireland’s reputation is crucial to future success and a robust regulatory regime is an essential building block.   If we aspire to join the Global Leaders group, then a good place to start is by looking at what kind of regulatory environment our competitors will be operating in over the years ahead.  In this regard I was particularly taken with the remarks of the Governor of the Bank of England, Mervyn King, speaking at the City of London’s annual dinner on Wednesday evening.  I quote:

“process – more reporting, more regulators, and more committees – does no lead to a safer banking system.  I believe that we can operate prudential supervision at lower cost than hitherto by reducing the burden of routine data collection and focussing on the major risks to the system. It is vital that we collect and process data only where the supervisors have a need to know.

Targeted and focussed regulation allowing senior supervisors to exercise their judgement does not require ever increasing resources.  For example we will reduce the number of people subject to the intensive regulatory interview process before appointment by limiting such interviews to the most senior people.  And one of the benefits will, I hope, be to make entry into the UK banking sector easier and so promote competition.”  End quote.

In short he is making the point that it doesn’t take vast resources, numerous data requests and complex reporting to determine if a bank is increasing leverage ratios or expanding its balance sheet to unsustainable levels.

As I hand you over to your Chairman, I would simply say this to our legislators and regulators.   This is an important sector, securing its future is vital to our recovery and return to economic growth.

Thank you.

Address by Tom Young, Chairman, FIBI at the Annual FIBI Lunch, 17 June 2011

Ladies and Gentlemen,

On behalf of the Federation of International Banks in Ireland (FIBI), I would like to welcome you to our annual lunch.  We are especially honoured to have as our guest speaker, Joaquin Almunia, EU Commission Vice President and Commissioner for Competition.  We look forward to hearing the Commissioner’s perspective on the issues as he sees them and on the way forward.

However, before we do, it would useful to provide a brief overview of the standing of the international financial services sector in Ireland since the launch of the International Financial Services Centre (IFSC) over 20 years ago.

International Banks in Ireland

As the representative body for international banks in Ireland, our Federation has 50 members including many of the world’s leading financial services institutions.  While the IFSC plays host to a diversified range of players, banking plays a key role in facilitating and servicing the broad range of activities and sectors located here.  We in turn are very active in and integral to the work of the Irish Banking Federation, to which we are affiliated.

The financial services industry is a very significant contributor to the Irish economy:

  • Contributing over 7% of GDP;
  • Paying  tax of €1.4 billion – or over 36% of total corporation tax receipts;
  • Employing  33,000 people here, of which 10,100 are employees of international banks;
  • Accounting for $696 billion in cross-border banking assets – making Ireland the 13th largest market in the world;
  • Accounting for the issuance of more than $1.2 trillion in international debt securities – up from only $70.3 billion ten years ago.

Ireland supports the full range of banking activities, including corporate and investment banking, funds industry services, asset management, corporate treasury, securitisation, leasing and asset finance, trade finance, and wealth management.  Many operations provide services to other parts of their group – services as diverse as middle and back office operations supporting a trading operation, to management of group liquidity or management of group project and structured finance.  New growth opportunities abound for existing activities as well as new areas of activity including green finance, Islamic finance, intellectual property and payments.

We are also becoming a key location for investment in financial services research and development (R&D).

In our own institutions many of us are working with colleagues in our parent organisations to identify further opportunities for locating and developing international banking services here.  Competitiveness is key to the success of these initiatives.

Some Key Issues

In this regard it is particularly interesting to note from research we recently conducted among senior-level executives across our sector that Ireland’s competitiveness as a location for international financial services is seen as having improved significantly.  Some 37% of respondents reported reduced costs over the previous twelve months, while for another 49% costs had stabilised.

This supports the National Competitiveness Council’s findings late last year that our cost competitiveness had improved because of, among other factors, downward price adjustments within the economy.

This trend is critically important for our business and it is vital that it continues – none more so than in the area of employment-related costs.  Unfortunately, we are beginning to see some evidence that the tax element of employment is making it increasingly difficult for institutions both to retain and to attract highly-skilled people in an internationally-mobile labour market.

Our research also indicates a developing view that the regulatory approach here is becoming less attuned to the different circumstances of international financial services as opposed to domestic banking.  Concern exists that the increased regulatory workload and the short timeframe for the provision of information and the implementation of new regulations is giving rise to a particularly heavy burden, especially for smaller institutions.  It is indeed essential for all stakeholders in our industry that we have robust and effective regulation.  However, it is also important that regulation is proportionate to the risk involved and the size of the institution in question.

The issues to which I refer briefly here are but a few of the many that are on our agenda at the present time.  We remain fully committed to working constructively with our stakeholders at the national, EU and wider global levels to progress our positive growth-oriented agenda.   We are fortunate in the professionalism and experience of our Secretariat and I would like to thank them on all our behalf for their work and commitment.

There continues to be considerable opportunity for us here in Ireland in our industry.  We look forward to working together to realise the potential to our mutual benefit.

In the meantime, let me wish you a pleasant lunch and I trust that you will enjoy the opportunity to meet with colleagues and to listen later to the address from Commissioner Almunia.

Thank you very much.

Note: As the voice of international banks in Ireland, FIBI is affiliated to the Irish Banking Federation.

IBF Endorses Case for Independent Research on SME Credit

The Irish Banking Federation (IBF) reiterates its support for the recent recommendation of the Credit Review Office for research on the issue of SME credit to be jointly commissioned by the relevant Government Departments, business and banking representative groups such that the results would command universal acceptance.

IBF remains firmly of the view that the results produced by ISME’s Quarterly Bank Watch Survey – the latest of which is published today – are misleading in that they do not provide a complete or accurate account of the demand for credit.

The Credit Review Office’s most recent quarterly report shows – based on an analysis of supply-side data – that the loan approval rates (in respect of the banks covered) stand at around 88% and remain in line with the findings of the three previous reports independently produced by Mazars.

At the same time, the CSO’s recent Access to Finance 2007-10 report, based on a demand-side survey, shows that 74% of loan applications were fully or partially approved (the latter may well have been for reasons of prudent lending).  As the graph below shows, this 74% rate is not notably out of line with the euro area considering the condition of the Irish economy generally relative to other euro area countries (source:  European Central Bank).

According to Pat Farrell, IBF Chief Executive:

“It is important that the focus remains on the full facts at all times and that we have regard to the realities of the marketplace.  While fully cognisant of the need to support the SME sector as a key driver of our economic recovery, the ongoing consideration for all lenders must be the viability and thus the bankability of the credit applicant.  As the independent Credit Review Office stated in its most recent report: ‘It is all too easy to say ‘banks aren’t lending’, or to call for banks to ‘lend more’, however this takes little account of the ability of many borrowers to repay’.”

Note

The Irish Banking Federation (IBF) is the leading representative body for the banking and financial services sector in Ireland, representing over 70 member institutions and associates, including licensed domestic and foreign banks and institutions operating in the financial marketplace here.

Information: Felix O’Regan, Director of Public Affairs, IBF, tel. 6715311, 087 6481644