Nov 18th, 2009

Cahill says banks' code of conduct has the force of a 'boy scout's pledge' and legislation is needed

At a Pre-Budget meeting with the Minister for Finance, Brian Lenihan, the ICMSA President, Jackie Cahill, said it was foolhardy to rely on the banks making credit available at a competitive interest rate to the productive sector of the economy. Mr Cahill said that the kind of commitments the state had received from the banks to renew the flow of credit to the wider economy had all the force of a boy scout’s pledge and about as much credibility. The farm leader said that the full force of regulation and compulsion is now the only option left to the Government. He said that the banks have shown nothing but contempt and arrogance to the state and taxpayers that had repeatedly rescued them and the fact that they have learned nothing from the shambles they have brought upon themselves and the wider economy was proved beyond doubt by the events of recent days.

The taxpayer has rescued the banks but, according to ICMSA, there is no effective means by which the Government can compel and regulate the availability of credit to the productive sector of the economy - and particularly the SME sector that includes farming. Mr. Cahill said that there were two components to the credit question: the actual granting of credit and the cost of it. He stated that banks have undoubtedly restricted credit to viable business and they have begun - and will continue - to rebuild unjustifiable profits by excessive charging both in terms of credit and associated bank charges.

Referring to the agricultural sector, the ICMSA President said that the equivalent of 23% of farm income is consumed in bank interest and charges and there was a growing debt crisis in farming arising from the huge investment and the collapse of farm income. ICMSA had made definite proposals to the Minister to directly secure credit facilities to the SME sector, including farmers, and for the effective monitoring of the banks in this regard. Dismissing the current arrangement as little more than a boy scout’s pledge, Mr Cahill referred to the current code of conduct under which the banks are supposed to make credit available. He stated that the code is useless, lacking in any effective monitoring and he said that the Financial Regulator’s office has confirmed to ICMSA that they do not carry out a routine compliance inspection of banks. Even if found in breach of the code, the penalties which a bank would face are a token fine of €1,270, an amount the ICMSA President described as a ‘derisory’. Mr Cahill called for the scrapping of this Code of Conduct and its replacement by an arrangement whereby banks would be compelled to make credit available at a competitive rate and be subject to full and effective enforcement procedures. In addition, ICMSA has called for an Ombudsman facility to cover this area and ensure that individual farmer’s rights are protected.

‘While fully aware of the excellent work being carried out by the Financial Ombudsman, that office is established under different legislation and no suitable facility exists within the Financial Regulator’s office. As far as the SME Sector is concerned, nothing has really changed other than a substantial drying-up of credit availability. There now exists a real and justifiable fear that banks have started to rebuild their profits and reserves at the expense of the real business in the economy. It’s time to really hold the banks to their word and stop going cap-in-hand to be treated to assurances that are vague to the point of uselessness’, concluded Mr Cahill.

BACK TO NEWS