No early NAMA lending effect - AIB

AIB chief executive Eugene Sheehy has told an Oireachtas committee that, the day after NAMA is introduced, there will be no perceptible difference at AIB branches in terms of lending to customers.

Bank chiefs from AIB and Bank of Ireland faced questions on lending and other issues this morning at the Oireachtas Committee on Finance and the Public Service.

Mr Sheehy later said NAMA had already improved the situation for Irish banks, and that it would have enormous benefits. Asked what the bank will do with the bonds it was receiving from NAMA, Mr Sheehy said AIB would use the bonds to improve its overall funding position.

Bank of Ireland told the committee it will not require any more state aid, according to a five-year business plan it has submitted to authorities in Europe.

The bank also told the committee it was committed to engaging with the National Asset Management Agency in order to support a functioning banking system, and aid economic recovery.

BoI admits 'mismatch' over lending claims

The bank's governor Pat Molloy, in his opening remarks, said that cash flow for businesses remains a problem and that SMEs continue to face significant trading difficulties.

He said that €2.1 billion has been drawn down by small and medium sized businesses (SMEs) in the first nine months of the year.

Fine Gael finance spokesman Richard Bruton said it was not credible to suggest that every business needing credit was getting it. Mr Molloy acknowledged that there was a mismatch between what politicians hear from their constituents and what the banks say.

Answering questions from the committee, Bank of Ireland's group CEO Richie Boucher said limits for overdrafts for SMEs had increased by 18%. He said the bank was working with Enterprise Ireland to 'improve our understanding of the sector'.

'We have a real task ahead of us to get across convincingly what we are doing for small business,' Mr Boucher added.

Mr Boucher also said BoI businesses outside of Ireland were being sold. He said their sale meant that it was not contradictory for the bank to say that it was capable of lending to business while shrinking its balance sheet.

Mr Boucher also said that while the money freed up by the NAMA process is important, the bank still needs to reduce its reliance on the Government guarantee. He said the liquidity situation six months ago was much more difficult that it is today.

He assured the committee that private residence mortgage holders have had every ECB rate passed on.

Mr Boucher said that the bank was assuming a 45% drop in house prices from their peak levels. He said the bank looked at loan to value rations when lending for mortgages, but the primary factor was its assessment of the ability to repay the loan.

Deposit competition 'uneconomic' - AIB

Earlier AIB chief executive Mr Sheehy told the committee that competition was 'intense' and 'uneconomic' in the deposit market. The bank provides of 40% of lending to the Irish SME sector.

Mr Sheehy also said AIB would like to keep its Polish division BZ WBK, saying it was providing liquidity for the entire group.

'Poland has more deposits than loans,' Mr Sheehy said. 'The worst thing we could possibly do would be to withdraw support from a market that is actually helping Ireland,' he added. AIB has said it is looking at the option of selling assets as a means of raising fresh capital.

AIB chairman Dan O'Connor said the selection process for a new chief financial officer and a new chief risk had started and both positions would definitely go to an external candidate.