The Governor of the Central Bank says Ireland's commercial banks need to re-focus their attention on lending to small and medium-sized businesses.
Professor Patrick Honohan says it is in the banks' own interests to ensure growth in lending to small firms, 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 had the impression that the banks had lost their edge in small business lending during the years of the property boom.
He said that Irish banks had 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 had to pay more attention to this , not just for the sake of the economy, but for their own business interests in the years ahead.
Professor Honohan said it was now 'pretty clear' that the state would be acquiring additional equity stakes in the main banks as part of a recapitalisation process. He said that, while he was not yet in a position to put a number on it, he could say that the overall cost to the state of recapitalisation would be manageable.
He said that the effect of this recapitalisation, and NAMA, which would remove the overhang of the banking situation from the state's finances, would move both the banking and budgetary situation forward.
The Governor said that as the markets digested this information and acknowledged these new realities, he expected to see a further tightening of borrowing spreads - in other words, a reduction in the cost of Government debt.
