Inside the world of business

Time to get rid of the bank guarantee

THE CASE for getting rid of the Government bank guarantee must be surely stronger than ever, particularly after reading a research paper from the Central Bank.

The paper on the pricing of variable mortgages shows how dysfunctional banking has become.

The cost of the Eligible Liabilities Guarantee, the extended guarantee which grew out of the 2008 guarantee, weighs heavily on the banks. It accounts for about a third of total bank funding costs of 3.3 per cent, the paper says.

The problem in Irish banking is plain to see when you consider that the banks are charging an average of 2 to 2.5 per cent on tracker rate loans, which represent 56 per cent of mortgages. The banks are paying more for their cash than they charge so a large part of their mortgage books – trackers – is unprofitable.

A variety of factors, not least the cost to the banks, must make the extended guarantee redundant.

Most large corporate and wholesale deposits have left the banks and remaining retail deposits are covered by the State’s €100,000 deposit guarantee scheme anyway.

The banks cannot sell bonds, even with the guarantee, because of the euro debt crisis. Given that five of the six banks are effectively owned by the State and the sixth (Bank of Ireland) is recovering with some private investment, is the guarantee really necessary?

The banks themselves sought an out clause when the Government last extended the guarantee, seeking an opportunity to avoid it being automatically applied to certain funding due to its cost.

All that aside, the most shocking part of the paper is for the customer. It shows that the banks have squeezed the only mortgage customers they can to salvage some profitability from disastrous home lending – standard variable mortgage holders, who account for 29 per cent of mortgages.

The gap between their rates and trackers, which the banks cannot adjust, rose from close to zero in 2008 to as high as 2.8 per cent at some lenders.

Hard to argue against case for home holidays

PULLING ON the green jersey is a tainted concept in Irish society.

So GoIreland.comchief executive Mike Webster is probably better risking the wrath of the global Occupy movement by naming his campaign for holidaying at home "Occupy Ireland" than making an appeal to tog out for the national side.

As the biggest online booker of accomodation at home, Webster has a vested interest in growing the market for “stay-cations”. But some of the numbers which he presents to back up his claim that 40,000 tourism jobs can be created if one in three of us holidayed at home are compelling.

He estimates Irish people spent €5 billion on overseas holidays last year. although the most recent data from the Central Statistics Office is for 2009. That equates to 50 million bed nights.

But with 32 million bed nights a year available in hotels, guesthouses and BBs, and an average occupancy of about 50 per cent, if his Occupy Ireland makes even a relatively small percentage of holiday makers stay at home it could have a significant impact.

Where Webster’s figures deserve further scrutiny is in the area of job creation. About 120,000 full-time jobs are supported by tourism, with an additional 80,000 part-time posts. Diverting one-third of overnight bed nights to the domestic economy would add €2 billion in revenues. But to say that would create 40,000 jobs seems a leap.

Many accomodation providers are barely hanging on and any increase in revenues is as likely to see them shore up existing jobs and invest in their properties as seek to hire new staff.

Webster rightly points out that spending tourism euros in Ireland is more economically beneficial than spending the same money at retail.

Whether it can prove the silver bullet for job creation is another matter entirely.

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