DUBLIN (Reuters) - Bank of Ireland's (I:BKIR) chief executive said lending to business would not be boosted simply by the outcome of bank stress tests and while improving, credit demand would trail the economic recovery taking hold.
The European Central Bank published results last month of its health check of the euro zone banking sector, an exercise its vice president said would help ensure the availability of credit, though he noted Europe still had a lack of demand.
Richie Boucher, whose bank got a clean bill of health along with Ireland's other main business lender Allied Irish Banks (I:ALBK), said there was a perception in Europe that banks were restricting lending to boost their capital but this wasn't the case in stress-test veteran Ireland.
"Passing the stress tests was a nice thing to have and it's an important part of the whole regulatory process but passing it doesn't mean the desire of credit appetite changed," Boucher told a parliamentary committee on Wednesday.
"We had been through a lot of stress testing. The outcome of the stress tests did not come as a surprise to us so the availability of capital and the availability of funding for at least the last two years hasn't been an impediment to our lending desires."
The bank, Ireland's only lender to escape nationalisation, said last month its new credit approvals to small- and medium-sized enterprises (SMEs) to the end of September had risen 18 percent year-on-year.
However its loan book continues to contract as repayments and redemptions continue to exceed new lending, and its SME and corporate loan book has shrunk by almost 40 percent since 2009 when the banking crash devastated the sector.
Boucher said that since March half of the bank's new lending to SMEs was for the purposes of "companies doing new things" rather than just refinancing existing debt and that this was an important component of the recovery.
He said that lending tends to track behind economic recovery, which is gathering pace in Ireland with gross domestic product (GDP) set to grow by almost 5 percent this year, and that credit provision then tended to go a little bit beyond GDP.
Asked if Bank of Ireland had become too risk averse in who it lends to after years of reckless lending across the sector led to an expensive state rescue, Boucher said: "It's a big issue as to whether you've become gun shy," adding "I hope not."
(Reporting by Padraic Halpin, editing by David Evans)