Feb. 13 (Bloomberg) -- Irish banks may be suffering a “fear factor” in lending after the collapse of a real estate bubble that resembled “a Ponzi scheme,” according to Justice Minister Alan Shatter.
Lenders handed out 623 million euros ($827 million) of home loans in the third quarter, according to the Irish Banking Federation. They lent 11 billion euros in the same period five years earlier, the height of the boom.
“What our financial institutions were running in the 2003- 2007 period was the nearest thing to a residential property pyramid scheme,” Shatter said in a Feb. 10 interview at his Dublin office. “We have gone from a situation from where they were throwing money at any dog that moved,” to one where the banks are being “unduly difficult” and “constipated.’”
Almost 13 percent of private residential mortgages were either more than 90 days in arrears or restructured at the end of September, according to the Irish central bank. Moody’s Investors Service said last week Shatter’s proposed personal insolvency laws may leave as much as 25 percent of the country’s mortgage debt open to write-off.
“There was the implicit suggestion that there would be some sort of banking Armageddon with this legislation,” said Shatter, who took office after the change of government a year ago, of the rating company’s report. “There are a whole range of things Moody’s are missing.”
Shatter said that many home owners in negative equity are paying their loans in full and only “an extraordinarily small number” of home repossessions have been ordered by the courts. Stress tests of the nation’s lenders last year also accounted for “potential residential mortgage losses,” he said.
The state has injected about 62 billion euros into the country’s lenders over the past three years amid soaring bad- loan losses, as the economy struggles to emerge from what the government calls the worst crisis since World War II.
“As we go along, there is going to be some hiccups and there will also be some unexpected victories,” Shatter said. “But we are going to keep at it.”
Ireland’s Finance Minister Michael Noonan said today that Allied Irish Banks Plc and Bank of Ireland Plc have been set “ambitious” lending targets by the government to lend 3.5 billion euros to small and medium sized businesses this year and 4 billion in 2013. The banks lent about 3 billion euros in 2011, he said.
Noonan made the comment as the government launched an “action plan for jobs” which aims to aid the creation of 100,000 jobs. About 440,000 people are unemployed in Ireland.
Under the plan, Ireland will introduce a loan guarantee for small and medium-sized business struggling to access credit and a 100 million euro micro-finance plan will also be introduce. The plan also offers finders’ fees for Irish people helping bring jobs from overseas to the country.
--Editors: Dara Doyle, Rodney Jefferson
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