Irish Building Magazine Interview – Mark Cunningham, Bank of Ireland’s Director of Business Banking

As Ireland and the Irish construction industry start to come out of recession, finance will play a key role in the recovery.  Irish Building talked to Bank of Ireland’s Director of Business Banking, Mark Cunningham, about how he sees the road ahead and how the bank can help the industry.


Irish Building (IB): What activity are you seeing in the property market and in the construction industry?

Mark Cunningham (MC): I think that the property market is showing signs of coming back to life. There is considerable international interest in finding quality office space and that is helping the industry. That international interest is also joined by a renewed Irish appetite for property with a number of examples recently of both domestic and international bidders competing at auction.

I would expect property activity levels to continue to increase in the first six months of 2013 and the IBRC liquidation will also accelerate deals that were in the pipeline. There is a shortage of the type of building that new companies – the Symantecs, eBays and Googles – require today.  Looking at projected IDA demand, over the next few years there is unlikely to be sufficient accommodation to meet their needs leading to a requirement for refurbishment to bring existing buildings up to the standard required today. Considerable equity will be required for these refurbishments.

On the residential side, the early indications are that we are starting to see a pickup in activity in Dublin and in the other cities. There is an overhang issue in the residential market and we aren’t going to see a major increase in construction activity in the short term, but there is a shortage in urban areas of the types of properties that people want to own, particularly as people now seek homes to meet their needs for the medium to long term.

IB: What is Bank of Ireland’s level of appetite for lending at present?

MC: We have a considerable appetite to lend and have completed a number of large deals recently: we were involved in the purchase of the Burlington hotel, the purchase of the Alliance Building complex at the former Gasworks in Ringsend and the Marker Hotel at Grand Canal Dock in Dublin.

We are also very interested in public private partnership (PPP) projects, such as the third schools’ PPP bundle and the N11 upgrade.  We have an appetite for future PPP deals and we also have a number of projects in the pipeline for private health care centres and for nursing home construction.

On the residential side, we are beginning to see people coming in for finance for small fill-in schemes in the cities, but we are talking about schemes involving 8 or 10 units.  I think we will see more of that in 2013, as there is no doubt that the residential market in Dublin and some other cities is turning a corner.

IB: The Construction Industry Federation criticised the banking sector last year and called on it to be more proactive in stimulating construction activity.  How well connected are you with the industry and its needs?

MC: We meet the Construction Industry Federation regularly to discuss matters of mutual interest and, similarly, we meet the Irish Hotel Federation and representatives from the nursing home and healthcare sectors. We have good contact with these groups – they know we have money to lend to their members and if they want to come in and talk to us they will and are more than welcome to do so.

IB: How has the lending market changed in recent years?

MC: While there are no hard-and-fast rules, generally we are looking at a 60% loan-to-value (LTV) ratio, where the bank provides 60% of the finance for a project and the individual lender provides a deposit of 40%.  Many investors or developers weren’t prepared to put up 40% in recent years, but that is changing. We will not be funding speculative housing schemes in places where there is already a marked over-supply of housing: we are interested in financing sensible projects with sensible cash-flows.

IB: How do you see the construction industry progressing in coming years?

MC: Recently, the Minister for Finance said we won’t have an economic recovery without a recovery in construction activity and we have to agree with that. In most developed economies, construction accounts for about 10% of GDP, but in Ireland it is currently at about 3%.  We need to get construction levels back up to where they should be, but that requires confidence on all sides.  By the time we get to the end of 2014, the outlook should be much better. Our role is to support people who are prepared to take risks, but to do that sensibly and prudently.

Bank of Ireland provided over €1billion in new mortgage lending to customers last year and two out of every five mortgages granted in 2012 were granted by BoI.

Almost 90% of that €1 billion in new mortgage drawdowns was to customers buying their first home or moving to a new home. To further build on this, the bank launched a new €2bn fund last October to support first time buyers and movers in 2013.

Interesting facts about first-time buyers obtaining new Bank of Ireland mortgages in 2012

* The average first-time buyer mortgage was €153,000.

* The average loan-to-value (LTV) ratio on a first time buyer mortgage in 2012 was 77%, meaning the average first time buyer contributed a deposit of 23%.

* The majority of first-time buyers bought the property with someone else.

* The average age of our first time buyers was 32.

* The majority bought in Dublin and the commuter counties

Bank of Ireland Business Banking exceeded its €3.5bn SME lending target for 2012 and are committed to achieving their €4bn target in 2013.

Particular increases in demand came from customers in the healthcare, manufacturing and hospitality sectors, while Agri lending has also remained strong. Increased demand for Asset and Commercial loan finance has also been a feature.

Lending to Dublin businesses was up by 27% compared to last year. With over 40% of businesses located in the capital this indicates that confidence is slowly returning, as evidenced by the growth in credit demand from viable businesses in the second half of this year.

Last November, Bank of Ireland held its seventh National Enterprise Programme which saw more than 5,000 entrepreneurs attend 80 events and networking meetings. Some 1,500 businesses also took the opportunity to showcase their products and services in Bank of Ireland branches nationwide. In 2013, the Bank will be rolling out a series of free Credit Clinics that aim to explain the lending application process primarily to start up and micro-sized businesses. ρ