We need German banking expertise not money

Christian Krämer’s assessment of the lending abilities of Irish banks is nothing if not Teutonically blunt. The vice-president of Germany’s state-owned development bank, KfW, which has just committed to lend €150 million to Irish business summed up his Irish peers as follows.

“We often had the impression that Irish banks are very professional in the property sector . . . but when it comes to pure company financing, analysing company risk and pricing that into an interest rate, some banks didn’t have the same level of professionalism.”

If anything Mr Krämer was being kind. Given the losses shipped by the Irish bank’s on their property lending, professionalism is not the first word that would spring to most people’s minds.

But he is on the money when it comes to Irish banks lacking a culture of lending against cash flow and the likes, rather than physical assets. Much of the Irish banks’ lending to small business in the last decade was tied up with property. Disentangling viable small businesses from catastrophic property investments has subsequently consumed huge amounts of time, effort and money.

This raises the question as to why KfW has decided to let these same banks lend €150 million of the German taxpayers' money. They may have added a rider to the effect that their money cannot be lent into the property sector, but it would seem that AIB and Bank of Ireland have a free hand otherwise.

The answer would seem to have more to do with Euro politics than banking and consequently Mr Krämer’s enthusiasm for deepening KfW’s relationship with the Irish banks is far from palpable. More is the pity as their expertise is probably needed more than their money.