FINANCIAL WATCHDOG TO REGULATE IRISH SUB-PRIME LENDERS FROM TODAY - The Irish market sub-prime lending, a newly familiar financial term, is now known as the process by which non-deposit taking institutions lend to people who want mortgages, but can not get them at mainstream banks. This practice took off in Ireland in the last four years as new lenders saw profit-making opportunities in providing finance to purchase or finance to refinance. The difference between a sub-prime lender and a bank is that there a greater risk associated with a sub-prime customer, so the interest charged is higher. The market potential is thought to be €4 billion by 2010, right now it is probably worth €1.5 billion.
There are about six companies in the Irish market - generally local Irish businesses backed by international banks with the access to funds. But with the credit crunch in the US, brought on by the practice of sub-prime lending there, those funds are less available, and Irish firms are having to consolidate.
Because these lenders do not take money on deposit they have not to date come under the umbrella of the organisations supervised by the Financial Regulator. But from today, under the terms of new legislation, sub-prime lenders have three months to apply to the Regulator for authority to operate. Once they are authorised the Regulator's Consumer Protection Provision will apply to all of the lenders.
The Consumer Director at the Financial Regulator, Mary O'Dea, says that once the Consumer Protection Code is applied to these lenders, there will be three main particular provisions that they have to comply with.
They will have comply with a suitability provision and will have to carry out checks to make sure that the loan is actually suitable for the borrower. There is also a provision in relation to arrears. The lender will have to have a policy in relation to arrears and recalculating repayments, rather then favouring repossession through court cases. In relation to the consolidation of loans, all lenders will have to point out the additional cost of that credit, so borrowers can then make an informed choice as to whether or not they want that product.
Michael Cullotty, director of the Money Advice and Budgeting Service, said this is a great day for sub-prime borrowers, but that regulation may have come too late for some.
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MORNING BRIEFS - The economists at NCB Stockbrokers are pouring water on the IMF's recent gloomy assessment of the Irish economy. This week the International Monetary Fund predicted a bigger fall in Irish GDP should US GDP fall by 1%, and it said Ireland's competitive position will have an adverse effect on future growth. NCB says that both of these eye-catching statements fuel the misconception that Ireland's economy is solely export driven and that our competitive position is deteriorating.
*** Reports this morning says that unemployment figures for January, due to be released by the Central Statistics Office at 11am today, will show unemployment has reached 4.8% - its highest level in four and a half years. The increase is higher than expected, and likely to be put down to construction companies not re-employing people after their Christmas break.
*** Aer Lingus has hooked up with low-cost US airline Jet Blue to offer the facility to book connecting flights through aerlingus.com to 40 domestic US destinations, connecting through JFK in New York. This service will be available from the beginning of April.
*** Brody Sweeney's O'Briens Sandwich Bars and Jay Bourke's Cafe Bar Deli restaurant chain have set up a joint venture to franchise the Cafe Bar Deli concept. They say there is the potential to create 500 new jobs in the expansion, which they hope will see 20 new restaurants opening in Ireland in the next four years, and afterwards further afield.
*** Clonmel based engineering firm Kentz is to float on London's AIM next Tuesday. The flotation is tipped to be the biggest IPO of the year in London, and Kentz will start trading with a market cap of €200m. Its clients are mainly in the oil, gas and mining sectors.
*** On the currency markets this morning, the euro is trading at $1.4860 and 74.6 pence sterling.
