IRISH BANKERS made a mistake by lending too much money to a small group of customers and business sectors, a senior banking executive has admitted.
Robert Gallagher, chief executive of Ulster Bank Corporate Markets, referring to the lending practises of Irish banks, said “there is no question that we bankers have made mistakes”.
“We have lent too much money relative to our deposit base [and] we filled that gap in the wholesale markets on a short-term basis.”
These mistakes included a concentration of “risk exposure” to certain people and markets, and issuing loans based on “incomplete information”.
Speaking at a Dublin Chamber of Commerce dinner on Thursday evening, Mr Gallagher said while the global credit crisis had exacerbated the problems facing the Irish financial sector “those fundamental errors that I identified existed irrespective of the [global] current crisis”.
Mr Gallagher has been a member of the Ulster Bank board since 2005, and formerly worked for AIB.
Ulster Bank, owned by Royal Bank of Scotland, is among the banks that have made high-profile loans to property developers.
It loaned much of the €379 million Seán Dunne’s Mountbrook Homes used to buy the Jurys site in Dublin’s Ballsbridge in 2005, and is one of two banks owed up to €150 million by Taggart Holdings, which was given court protection from creditors last October.
Addressing almost 300 business people and politicians, including Taoiseach Brian Cowen, Mr Gallagher said healthy banks were “inextricably linked” to the health of an economy.
Banks had to work to rebuild public confidence, “to become organisations that you are happy to put money on deposit with”.
Calling for a new relationship with customers, Mr Gallagher said banks had to provide a “robust challenge” to business propositions and warn of potential risks. However, once a decision was made to invest, banks had to provide support quickly so viable businesses could “flourish, grow and recruit”. “Equally, customers now need to get back to sharing information with their banks on an accurate, timely and complete manner so that together both parties understand how the business is going.”
Following bank nationalisations in the US, Europe, and of Anglo Irish Bank in Ireland, Mr Gallagher used the analogy of a marriage to describe the relationship between banks and governments.
This relationship in all countries, including Ireland, has gone from “occasional arguments, people in different rooms with different agendas” to a shared view that a “healthy banking system is essential for a healthy economy”.
Mr Gallagher’s comments come as the Government continues to fine-tune its proposals for the recapitalisation of the State’s two biggest banks, which could see €7 billion of capital injected into AIB and Bank of Ireland.
In August, the Ulster Bank Group reported a 43 per cent increase in bad debts to €74 million due primarily to loan losses to the commercial and property sector.
This is equal to 0.23 per cent of its overall loan book and the bank expects this to rise.
