Re-capitalisation to assist with further lending - I doubt if it can work?.

[sfag]

Heres my take.

Surely from now on all future lending is going to be scrutinised as to where it ends up. For example the new capitalisation will reduce the asset to lending ratio for banks existing balance sheet entries, and make it possible for them to return to inter bank lending as before.
But if you were the bank lending to the Irish Banks wouldn’t you be hesitant to lend to someone who has been told (by the government) to resume lending against assets which are almost certainly going to depreciate in value further.
Surely the loan to value ratio on offer from now on will be so low to exclude almost of all of those it is designed to help.

Yet the Government has targeted groups where the money it is investing is going to go to – ie SME’s, new home owners, etc.

I cant see how it can dictate where future lending can go if creditors of the banks – ie those who lend to the banks – have first say on where their own money goes. Surely they will be making a judgement call on the probability of getting their money back.

Anyway - if the Government wanted to ensure that money went to target groups within the economy it simply could have lent the money to them in the first place - an example of this would be the council purchase scheme for first time buyers.

As it stands surely any money pumped into the banks will have the effect of keeping the banking system on a sort of life support – So I cant see how normal lending can resume until the current depreciation of asset has bottomed out. Only then can normal lending resume …?

 

[z109]

What is important, to me, is the total amount of credit that is supplied to the economy. In the boom years, investors, trader-uppers/refis and FTBs each made up about a third of the mortgage market. Since then, FTBs have collapsed down to 15 or 20% with the majority of the rest being trade-ups and refis. So an increase in lending of 30% to FTBs is not going to pump the system much and may result in less credit being available for investors or refis.

Likewise with SME and green energy investment compared with overall business investment.

It also begs the question whether the 'increases' are to the much reduced figures of recent times or to some average from last year.

In short, I think it is a bit of a window-dressing dig out for the developers.

 

[Bob_tg]

I agree with you both.

My take on it is that lending can't and shouldn't increase until values have returned to sustainable levels. In these times, all lenders are focusing on value - regardless of the cash available to them, lending will be restricted until asset values are rebalanced.

IMO, current government policy should therefore be focused on encouraging realistic asset values - not throwing more cash around at overpriced assets. Some of these policies could be controversial, but we couild have something like they have in the States that allows people to write off their debt and recover their full credit rating within 5 years or so.

If the government encouraged us to write down values, this would actually help developers and competitiveness in the long run.