Focus funding on strong firms -- CRO
Published 24/05/2011 | 05:00
Banks should focus on saving strong businesses instead of indulging in the 'slow death' of non-viable companies, the head of the Credit Review Office (CRO) said yesterday.
CRO boss John Trethowan said the two pillar banks, AIB and BoI, were subjecting some customers with little hope of future viability to a 'slow death' when they should use their capital to save "good" SMEs.
He warned businesses to present viable business plans if they were to have their credit applications accepted, adding that a cheaper form of examinership, debt write-offs or debt-for-equity swaps needed to be considered by the Government.
"It's too simplistic to demand the banks lend more as this takes no account of the viability of some SMEs. The banks have to avoid further lending losses which are unacceptable to the public who have suffered enough to date," he said.
The report came as a CSO survey showed bank lending to business has fallen 40pc since 2007. NCB Stockbrokers' Brian Devine, however, warned against forcing the banks to loosen their lending standards.
"More debt for an overleveraged firm does not solve the problem," he said.
In the first full year report from the CRO, Mr Trethowan said his office had dealt with 76 formal applications.
Of the 45 reviews that have been completed, the CRO overturned bank decisions to refuse applications 23 times.
The banks are "on track" to meet their SME lending target of €6bn each over two years. The two banks lent a combined €8bn to small firms last year, although that includes restructuring of current facilities, so it was not all new lending.
Mr Trethowan said many challenged SMEs were technically insolvent. Debt-for-equity swaps or debt write-offs and restructuring would have to be considered, he said.
His office needs to handle credit requests of more than the current €250,000 limit and to cover other lenders. The CRO already deals informally with Ulster Bank, while Bank of Scotland (Ireland)'s decision to pull out has caused huge problems for the hospitality sector.