DUBLIN: Ireland’s banking system needs more competition to give them incentives to increase lending, the outgoing governor of the central bank said on Friday.
Addressing small and medium-size businesses (SMEs) in one of his final speeches before retirement, Governor Patrick Honohan said credit was not flowing into their sector as it should. Irish banks are charging higher interest rats and rejecting more loan applications than their European peers, he said.
The Irish economy is growing faster than any other in Europe, and most of Ireland’s surviving five banks returned to profit last year for the first time since the 2008 financial crisis. Their collapse in the crisis left them requiring the most expensive bank bailout in the euro zone.
“We could all do with more competition in the banking system and I am of course encouraging new investors to come into the system, in whatever way – through acquisition, new startup – and I am hoping that that will happen,” Honohan said in a speech.
“In all the countries, especially since 2014, the interest rates (for SME loans under 0.25 million euros) are coming down quite sharply, but not in Ireland.
Irish banks mis-priced credit risk before. Are we sure they are mis-pricing the other direction? … Competition between banks has the potential to lower interest rates further.”
Ireland’s largest domestic banks, Bank of Ireland and Allied Irish Banks, have reported growth in new lending from a low base. However, indebted customers are repaying loans faster than the banks are lending, so their overall loan books have not increased.
