INBS did not have enough staff in credit risk, inquiry told

Staff levels in Irish Nationwide Building Society’s credit risk function were inadequate, an inquiry into alleged regulatory breaches at the building society before the financial crisis has been told.

Giving evidence to the public inquiry on Wednesday was Frank Casey, who joined Irish Nationwide in 2003 from Bank of Ireland. Mr Casey was a commercial lending administrator at the building society, involved in rating and reviewing the credit risk of commercial mortgages.

Asked by Niamh Hyland SC, on behalf of the inquiry members, whether staffing levels in the INBS’s credit review function were inadequate, Mr Casey replied, “Yes”.

He noted that in Bank of Ireland there would have been 100 people looking at the loan book, but that it was “much larger”.

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Ms Hyland also asked whether there was an appetite at the top of the bank for independent reviews of credit risk associated with a loan book. In line with responses to an interview Mr Casey had previously given, he suggested there wasn’t.

The inquiry, which was established by the Central Bank of Ireland in 2015, is seeking to establish if former INBS chief executive Michael Fingleton and three other former managers were involved in seven alleged contraventions at INBS between August 2004 and September 2008.

The first module of the inquiry is looking at whether the society’s credit committee failed to adhere to internal policies by not reviewing cases of large commercial loan arrears, exposure to specific sectors or customers, or issues raised by internal audit, outside advisers or regulators.

Four individuals

Mr Fingleton is one of four individuals currently subject to the inquiry. The others are former INBS finance director John Stanley Purcell, one-time commercial lending manager Tom McMenamin, and Gary McCollum, who once led the society's UK lending activities from Belfast.

Mr Casey told the inquiry that when he joined the society there was a “small credit review function” but that there “wasn’t a proper structure to it” as far as he was aware.

He estimated that the building society’s top 100 loans in the period accounted for 80 per cent of the loan book.

Ms Hyland asked him whether his grading system on existing loans would affect further lending to the same client. Mr Casey noted that in Bank of Ireland, if a loan was grade four, it would be difficult to get additional facilities. “I don’t know if that was taken into consideration [in INBS],” he said.

Mr Casey noted that if loans were graded four and five, which were considered to be problematic loans, and had been addressed early enough, losses on them may have been mitigated.

The inquiry continues and Mr Casey will give evidence for a second day on Thursday.