Banks need to lend to businesses - Honohan

The Governor of the Central Bank has said Ireland's commercial banks need to refocus their attention on lending to small and medium enterprises.

Professor Patrick Honohan says it is in the banks' own interests to ensure growth in SME lending, as property-based lending will be greatly reduced in the years ahead.

Speaking at the Trinity College Alumni Career Network this morning, Professor Honohan said he has the impression that during the years of property based lending, the banks have lost their edge in small business lending.

He said that Irish banks have reacted to their own difficulties in this downturn by greatly reducing their risk appetite.

As a result there has been limited availability of credit for start-ups and SMEs.

The Governor said the banks have to pay more attention to this, not just for the sake of the economy, but for their own business interests in the years ahead, when property based lending will be on a much more limited scale.

He said that it is now pretty clear that the State will be acquiring additional equity stakes in the main banks as part of a recapitalisation process.

He said while he is not yet in a position to put a number on it, he could say that the overall cost to the State of recapitalisation will be manageable.

The Governor said that the effect of this recapitalisation and NAMA will move both the banking and budgetary situation forward.

He said that as the markets digest this information and acknowledge these new realities, he expects to see a further tightening of borrowing spreads.

At the same event the Chairman of the Innovation Task Force, Dr Chris Horn, said that this year the State will spend 60% of tax revenues on debt servicing and Social Welfare.