INBS failure to follow auditor guidance found in 2008, inquiry told

Irish Nationwide Building Society (INBS) was failing in early 2008 to meet a key recommendation from its own external auditors made 18 months previously, financial regulators found.

A letter on February 8th, 2008, from a regulator to INBS's then chairman, Michael Walsh, said that while the society's external auditors at KPMG had recommended in August 2006 that so-called credit reviews be provided to the credit committee, this was not taking place.

The committee was primarily responsible for adjudicating on commercial loan applications.

Excerpts from the regulatory correspondence were read out Tuesday at an ongoing inquiry into alleged lending practice breaches at INBS before the financial crisis.

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A reply from Mr Walsh to regulators on April 21st, 2008 – five months before the global financial crisis hit – said that credit review reports would in future be submitted to the credit committee, the inquiry was told.

However, John Murphy, a former commercial loans administration executive at Irish Nationwide, who served on the committee from December 2007 until September 2008, said he was neither aware of the regulatory finding nor did he recall the committee receiving credit review reports during his time on the committee.

The inquiry, set up on foot of a Central Bank decision in 2015 and where public hearings began in December, is seeking to establish if INBS's long-serving managing director Michael Fingleton and three other former managers were involved in so-called contraventions at INBS between August 2004 and September 2008.

The other three men are INBS’s former finance director John Stanley Purcell, its one-time commercial lending manager Tom McMenamin and Gary McCollum, who once led the society’s UK lending activities on Belfast.

The first module of the inquiry is looking at whether the society’s credit committee failed to adhere to internal policies by not reviewing cases of large commercial loan arrears, exposure to specific sectors or customers, or issues raised by internal and external auditors, outside advisers or regulators.

Mr Murphy told the inquiry on Tuesday that he had no recollection of any of these issues being discussed during regulator credit committee meetings, which focused, instead, on adjudicating on commercial and development loan applications.

The inquiry continues.