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Dan White: Bank of Scotland's pullout brings us a step closer to grovelling for rip-off loans

When Bank of Scotland first entered the Irish retail banking market a decade ago, the newcomers were described by then IL&P boss David Went as "suitcase bankers" who would cut and run as soon as the going got tough.

Went was widely derided at the time, not least by yours truly, but now that the Scots have pulled out of Ireland with their tails between their legs it turns out that Went was right all along.

UK banking giant Lloyds' decision to pull the plug on its Irish operation is a disaster for this country. The impact of the decision will be felt not just by Bank of Scotland (Ireland) customers but also by the customers of all the other banks who will find it much more difficult to get loans and, when they do get them, will pay far higher interest rates.

And BoS(I) is almost certainly not alone. As the Celtic Tiger boomed, foreign-owned banks were attracted to the opportunities it presented like bees to a honeypot. Bank of Scotland, Rabobank and Danske Bank (the owners of NIB) all piled into the Irish banking market while RBS (which owns Ulster Bank) and KBC massively beefed up their existing Irish operations.

At the top of the market in 2005 and 2006, when Irish bank lending was growing at a barely credible 30pc a year, the foreign-owned banks were scattering money around like snuff at a wake. In what was traditionally an insular banking market dominated by the domestic banks, the foreign-owned banks managed to lend about €120bn, giving them an almost one third share of the market.

Trick

However, as has now become apparent, while any fool can lend money the trick in banking is to get it back. Now that the Celtic Tiger has been transformed into a mangy moggy, all of the banks operating in the Irish market are finding it extremely difficult to get their money back.

This is particularly true of the foreign banks. It is one of the banking business's dirty little secrets that, when the market is booming, the existing operators tend to steer their riskier customers to the newcomers.

This is what seems to have happened to the foreign-owned banks that came to Ireland during the Celtic Tiger years.

Now that the party is over the foreign-owned banks have, one after another, revealed huge loan losses. As Ireland's economic crisis has deepened with any hope of recovery receding further and further into the future, all of the foreign-owned banks have been reassessing their massively loss-making Irish operations.

The first sign that foreign-owned banks were headed for the exit came last February when Lloyds announced it was shutting its Halifax retail banking operations. Since then NIB, which is owned by the Danish Danske Bank and has lost €1.4bn on its €10bn Irish loan book, has shut half its branches in this country. Now Lloyds has pulled the plug on its BoS(I) business banking operation.

So who will be next to quit the Irish market? In truth, it could be any of the foreign-owned banks. Even Ulster Bank, which has been owned by RBS and its predecessor NatWest since 1917, is not considered immune. Those foreign-owned banks that have so far stayed in Ireland have to all intents and purposes stopped lending and are concentrating instead on trying to get back the money they have already lent.

Grovel

Good luck to them. The chances of the foreign-owned banks eventually recovering much than half of the money they originally lent must be considered remote.

This means that more and more of us will be thrown back on the tender mercies of the Irish-owned banks. Remember the so-called "mortgage famines" of the 1980s when you had to grovel and scrape before your bank manager for the privilege of him approving your application for an over-priced loan? It's going to be like that all over again, only much, much worse.

hnews@herald.ie