Thursday, February 16, 2012

Irish banks once again highlight need for ultra transparency

An article in the Independent confirms why banks must be required to provide ultra transparency and disclose on an ongoing basis their current asset, liability and off-balance sheet exposure detail.

The article discusses the how more than one third of the loans to small and medium enterprises (SMEs) are experiencing performance problems.

Without ultra transparency, given this level of performance problems, how are market participants suppose to be able to assess the risk of the Irish banks?

Also, is there any reason to think that market participants anticipated this level of performance problems with the SME loan portfolios?

Had there been ultra transparency, market participants could have monitored these loans and seen their deterioration.  There would have been no surprises.

Without ultra transparency, the performance problems come as a shock.

More than 80pc of the biggest loans to hotels and restaurants are in trouble, according to a major analysis of lending to small and medium-sized enterprises (SMEs) to be published this morning. 
Hoteliers, restaurateurs and builders with heavy debts are the most likely groups struggling to repay bank borrowing, according to a Central Bank report.

But the level of serious arrears among our large manufacturers will come as a surprise with more than 70pc of loans to large manufacturing companies in trouble. 
The new survey is the first to examine the loan books of major banks to get a real picture of the country's struggling businesses. 
With ultra transparency, market participants would always know what the current picture of the country's businesses is and have the information necessary to assess the risk of the country's banks.
While the courts have revealed problems with the country's biggest developers, the plight of SMEs, which employ two-thirds of private sector workers, is still difficult to gauge. 
The survey paints a grim picture across all segments of the economy and shows there are high levels of non-payment among big borrowers even in the so-called thriving sectors of the economy. 
Among the findings from the Central Bank report are:
- 30pc of all loans to SMEs are in trouble.
- The largest loans in all industries are the most likely to be behind in repayments.
- There is little difference in loan repayment rates across different regions.
- Loans in the agriculture and food sectors are most likely to be repaid.

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