Getting credit flowing to SMEs… or something

Strangely, according a press release today, Fine Gael seems to support the establishment of the Credit Review Office. I can’t fathom why, even Mark Fielding of ISME can’t see it overturning many refusals.

The process

The banks get into trouble after giving out big loans to customers who could never really afford to pay them. Banks go bust. Banks get re-capitalised. Banks begin to more carefully consider the viability of entities to which they loan. Banks realise that some entities to which they loan have no commercial future. Banks thus lend to less entities.

Concurrently; Government realises that simply recapitalising the banks through Nama won’t ‘get credit flowing’ to small businesses. Government realises that bailed-out banks not lending to small businesses won’t look good. Government devises a way to make it look like they’re doing something to pressure the banks. Government establishes the Credit Review Office. However, Government gives the Credit Review Office no statutory or regulatory powers and thus ensures it will be little more than an Missus Doyle to the Nama banks. Will you ever give them a bitta credit? Ah go on, go on… gwan gwan gwan gwan gwan. Government does so because everyone – even them! – knows banks being careful in choosing to who they loan is a good thing, banks doing the opposite is part of what has us here in the first place.

The real reason for establishing the Credit Review Office was to allow Government spokespeople, when questioned on how it is “getting credit flowing“, to say “we’ve done a lot to make absolutely sure this happens, we’ve set up the Credit Review Office which is ensuring that viable businesses get the credit they need to keep people in jobs”. Spokespeople will be able to say so in the knowledge that what they’re claiming is waffle of the highest order because if the businesses were viable the banks would want to lend to them to help improve their own balance sheets, thus the Credit Review Office would be irrelevant.

Therefore, isn’t the very existence of this Credit Review Office an admittance of sorts from Government that Nama and the bank recapitalisation wouldn’t get credit flowing? Not that that’s shock news to anyone, but it’s something Government finance spokespeople had been claiming for months.

If Nama was to get credit flowing, then why upon the estabishment of Nama did the Government see fit – in the same Act – to establish a quango responsible for reviewing circumstances in which banks weren’t allowing credit to ‘flow’.

Oh, and while on this sort of subject, the €3bn fund for businesses via Nama? Let’s see how the banks can work that one by reclassifying the terms of current clients’ loan facilities, over-lending to customers and generally doing what they do best. Forcing credit into the market can be a dangerous thing in itself.

Footnote: The best quote in the Indo article with that Fielding sound-bite is the one from John Trethowan, head of the Credit Review Office.

The former banker said both AIB and Bank of Ireland have been working to help set the independent Credit Review body up.

“So if the credit reviewers and myself come up with the opinion that a credit is safe, I am pretty sure that the banks will be minded to listen to what I’m saying,”

Er, but the thing is, Mr Trethowan is kinda unlikely to have a differing opinion. Under the set-up all applications must have gone through the full internal appeal process – up the chain of command – in the bank before it comes before the Credit Review Office. So the chances of the Office disagreeing with the banks’ decision is fairly low.

Plus, as a former President of the Institute of Bankers in Ireland, Chairman of the Bank’s Pension Scheme, Executive Director of National Irish Bank and former Executive Director of Nautilus Insurance Europe and Northern Bank, I’m not sure if Mr Trethowan would be the type to step on the toes of tight pocketed bankers.

Is that the sweet smell of a quango?… Maybe I’m just getting cynical in my old age.

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