Unless a solid and imaginative credit-provision framework is put in place by the Government, the productive sector – including farming – will simply be unable to move out of a condition of permanent or semi-permanent credit crisis, according to the ICMSA President, Jackie Cahill.
The reduction in competition as foreign banks leave or 'shrink' operations in Ireland is leaving the key area of credit provision in Ireland in the hands of a very few operators either outright owned or controlled by the Government, warned Mr Cahill. "The Irish credit scene will be cut off from what is happening in Europe and this will particularly hit farmers and other small-to-medium enterprises as larger companies can source credit externally".
The ICMSA President predicted that the present focus of Government aimed at rescuing the banking sector would shortly move to a strategy of ensuring solid performance in terms of profit. Mr Cahill stated that such profits could only come from one place – and one place only – the borrowers. The danger is that given the high cost of banking in Ireland and the higher cost of funds to Irish banks, interest charged to farmers and other costs associated with credit will grow and move competitively 'out of line' with what is available in other countries.
"What is required is a robust system where the interest rates and other fees charged by Irish banks are collated and published together with information on similar costs in other EU countries. This is not being done at the moment in any meaningful way. And it is necessary that this would have been put in place in order to force the banks into being competitive. Given the enormous increase in resources that have been put in place in the Central Bank and Financial Regulator there is more than adequate personnel to carry out this work. The availability of credit is one thing, but availability at competitive rates is a key issue and there is a widespread view that banks will use every opportunity at restructuring to hike up interest rats charged to customer – particularly where an individual is in a vulnerable position regarding the need for restructuring", warned Mr Cahill.
On a related point, Mr Cahill said that the cost of providing security for loans has mushroomed out of all proportion and is now costing up to €1,500. "In the past sufficient security could be given by lodging land certificates. Now we see a huge costly apparatus being constructed that seems to serve no purpose other than to give the Government, the Banks and the legal profession another convenient opportunity to charge fees", he observed.
"Unless we learn from what is the worst banking crisis ever experienced in a developed country (then) all this chaos will have been for nothing. Those who do not learn from disaster are condemned to repeat it. If we do not move decisively to ensure that credit is made available at competitive rates than it is virtual certain that the small-to-medium productive sector will carry significant costs that will undermine their efforts at producing for exports and undermine economic development into the future", said the ICMSA President.
"This isn't a question of the Government spending more money. This is a question of will and proper regulation. But it has to happen and a great start would be the collation of comparative rates and charges so that we can see what we're being asked to pay for loans and credit compared to our Dutch, German and Danish colleagues and competitors", he concluded.