Banks are lending (while standards tighten)

I often complain that banks are ‘not lending’, they say this isn’t true. The Central Bank then says that lending criteria is tightening (report here). This at first seems to support the first statement, but could it be that they are lending and reining in on underwriting criteria at the same time?

It could be, AIB stated that they wanted to lend €800m this year (that was said at the end of 2011 at an in house conference), they are on track to lend €1,050m which is about 25% higher than previously expected. Bank of Ireland/ICS are saying the same thing, at the same time, the main lenders have jacked up rates and made more conservative estimations of who does or doesn’t get loans.

With the fall out in lending from 06/07′ to now, it means that there are plenty of borrowers of a high quality who are seeking finance, when you raise interest rates the stress-testing gets harder to pass, so that cuts out a lot of borrowers, as does reducing LTV’s (because it requires larger deposits) and various other net disposable income calculation changes make the loan you qualify for smaller.

If only house prices were at 1975 levels!

So while they are lending, they are being particularly finicky about the client and because they have the pick of the litter they are taking up all of the highest quality applicants only. Which means those who are good but not ‘top class’ are not getting loans and will have to wait for criteria to soften, and they are the group we are talking about when we say banks are not lending.

So both sides of the argument have a point, to be fair to the banks they are lending, but at anaemic levels, lending is merely going from palliative care into the ICU it is a far cry from the c. €8bn many analysts say the market requires.

Half of all transactions are in cash – hardly a sign of a functioning intermediation market! It is actually an example of the banks NOT doing their job. The best they can hope for is that the buyer and seller are both clients of the same institution.

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