AIB CHIEF executive Eugene Sheehy has said recapitalising the banks would not increase the flow of credit into the economy. He said the bank had approached the European Investment Bank (EIB) for more loans to small businesses, writes SIMON CARSWELL, Finance Correspondent.
Speaking at the Small Firms Association's annual lunch at Croke Park, Mr Sheehy said: "Recapitalisation of the banks will not make credit more available. If it were a panacea, the UK banks would be lending more on the basis of it, but they are not."
He said lending was determined by the need for lower loans-to-deposits ratios and the downturn in borrowers' credit worthiness.
Earlier, Mr Sheehy declined to comment on whether AIB had been approached by private investors and on possible plans by the Government to merge banks.
"The Government and the banks are talking to each other and we have nothing to add," he said. He described as "speculation" reports that only two banks, AIB and Bank of Ireland, would remain after any consolidation.
In his speech, Mr Sheehy said AIB was entering discussions with the European Investment Bank to access funds to finance small and medium-sized businesses and that it would apply for the maximum amount it can to channel to its customers.
"This will not be a cure-all. There are restrictions on these loans. These funds are not available for working capital," he said.
Mr Sheehy said AIB was "open for business" on new lending and that the bank's primary focus was to support credit growth in "key segments" critical to economic recovery - mortgages, small and medium-sized businesses and consumer loans.
He said the bank had sanctioned €1.3 billion in new loans in the State in the last four months, twice the bank's growth rate in terms of its market share, and that it had not changed lending rules.
He said the bank was introducing a one-year fixed rate of 3.25 per cent - equal to the current European Central Bank (ECB) rate - for first-time home buyers which was pricing future rate cuts.
This would make mortgages more affordable to first-time buyers which would "get the housing market moving" and this would have "a very profound effect" on the State's fortunes.
The bank expects the ECB base rate to drop to 2 per cent by the middle of next year and was pricing this into the new rate. Mr Sheehy said households would have an extra €4 billion next year as a result of lower interest rates.
He said lending had increased to consumers and new small and medium-sized firms. "This does not mean that loans are available for any and every scheme. It is not in anyone's interest - either customers or banks - to lend money to people who cannot repay it," he said. "Good banking practice requires appropriate credit on a commercial basis to credit-worthy customers."
