Deposit dilemma facing Irish banksWednesday 12 December 2012 15.41 By David Murphy
by Business Editor David Murphy @davidmurphyRTE
There have been a lot of concerns about the reluctance of banks to lend to businesses. The boss of the Credit Review Office, John Trethowan, has said he is “disappointed” by the provision of loans to firms. Mr Trethowan knows what he is talking about. So the complaints seem well justified.
The head of the Department of Finance, John Moran, has made some interesting comments on the issue. He said part of the problem was that large corporations still won’t deposit money in the Irish banking system.
“We hear a lot about the banks and whether they are lending to companies across the country. I think it is an equally fair question to ask, whether the companies, that are sitting on cash, are lending to the banks?” he said.
Mr Moran also remarked that while retail deposits had returned to the banks, corporate deposits had not. He made his comments at the annual conference of the Irish Association of Corporate Treasurers. These are the professionals who ensure that large companies are prudent with their cash.
After Mr Moran spoke, the gathering was addressed by CRH’s senior cash and debt manager Phil Shepherd. He said his company was mandated by its board not to leave cash in a bank in the euro zone during any weekend. Instead it uses banks in the UK, US and Asia, he said.
CRH has a point. If there was an exit of any country from the euro it would be likely to happen when the financial system is shut on a Saturday and Sunday. CRH’s shareholders would not thank management if some of the company’s capital was redenominated into a weaker currency in the dark of night.
But maybe the large companies are being too conservative and that is having an impact on the Irish banking system. The bond market indicates investors don’t think the country will leave the euro. The cost of borrowing has fallen from a terrifying 15% in July of last year to less than 4.5% now.
But that’s not to say the euro will stay intact. Greece remains in freefall. However, a one size fits all policy from the people who manage money is not helping Ireland’s credit shortfall.
But the reluctance to leave money in Irish banks may not only be caused by concerns about the euro. If a company has been turned down for a loan by the bank, it may not feel inclined to give an institution in Ireland the benefit of its deposit.
Banking is about confidence. If large corporations don’t feel they can put their trust in Irish banks by leaving their money on deposit with them, then it is not that surprising that there is a problem with the provision of credit.