Firms refused loans ignore help of Credit review office
Published 19/11/2010 | 05:00
FEW businesses are applying to have their loan applications formally reviewed by the Credit Review Office despite ongoing reports of banks refusing loans to viable companies.
According to the latest quarterly report from the Credit Review Office (CRO), only 19 formal applications were made by SMEs to review loan applications that had been declined by Bank of Ireland and Allied Irish Banks between July and September. That compared with 18 applications during the previous three months.
Out of those 19 applications, the CRO said credit should have been given in five cases. Outside of formal applications, John Trethowan, the former National Irish Bank executive who heads the CRO, claimed his office had dealt with 467 phone enquiries and more than 4,000 people had accessed the CRO's website.
The CRO independently adjudicates on appeals from SMEs which were refused loans by Bank of Ireland and AIB and offers an opinion on whether the decisions were justified.
The banks' internal review systems are now set up in line with the CRO and have overturned 20 of 114 applications that were initially refused.
Ulster Bank, which is not directly covered by the CRO, have also brought their lending appeals process in line with the office's practices.
Mr Trethowan acknowledged that while the number of completed reviews was small, he pointed to a lending situation which is apparently improving but demand is weakening.
"Most commentary on SME lending dwells on the supply side.
"There is little or no research or knowledge of the actual level of borrower demand, which all banks report as subdued.
"We are approaching a tipping point whereby the issue is moving to a demand side problem.
"SMEs, to survive in the current climate, have improved their cashflow management, slowed the velocity of money and deferred investment decisions; all of which is reducing demand for working capital and term lending at the present.
"Current market perceptions that banks are not lending to SMEs is based on experiences from six to nine months ago, and the current situation, while still not entirely perfect, is continually improving."
Nevertheless, the CRO report was roundly criticised by the small firms group ISME.
"The reality is that while there has been an improvement in SME lending, almost half of business applicants are still being refused credit," said chief executive Mark Fielding.
"The CRO has a role to play in assisting the process and ensuring that the banks meet their commitments and must be more active in ensuring that companies use the appeals service," he added.