Only one-third of SMEs applying to banks for credit, survey finds
Published 30/11/2011 | 05:00
Just a third of small-and-medium-sized businesses (SMEs) are applying to the banks for credit, and less than three-quarters of them are successful, a new survey has found.
The government-sponsored report, compiled by the accounting firm Mazars, shows that only 36pc of small companies applied for bank credit in the six months to the end of October.
That is far below the number expected by people in the sector and appears to vindicate the bank's position that a lack of demand, rather than their refusal to lend, was behind lower lending figures.
Both AIB and Bank of Ireland are under pressure to hit an SME-lending target of €3bn each by the end of this year. While this survey covers the entire banking sector, some 82pc of applications were made to the "pillar banks".
The survey, however, shows that some 70pc of credit applications are being approved by the banks -- far less than the 96pc of the peak of the boom and below even the 75pc approval rate accepted as "normal" lending rates.
In addition, in more than three out of four cases, when the bank turned down an application it did not provide a reason for its decision. At the same time the bank did not inform the borrower that they could use the bank's appeals process.
SME trade groups were highly critical of the findings.
ISME and the Small Firm's Association said the results demonstrated that the banking system wasn't functioning and demanded the Government take action.
SFA chief executive Patricia Callan pointed to the fact that the banks took longer than 15 days to make a credit decision in half of the cases as evidence that the sector needed more government intervention.
"The banking system cannot return to efficient working where the Central Bank is insisting that the banks be ultra-risk averse ... in direct contrast to a whole raft of senior government ministers who espouse the importance of getting credit flowing to small businesses again, as an essential pre-requisite to growth and job maintenance and creation. The pendulum has clearly swung too far," she said.
ISME boss Mark Fielding accused the banks of "stalling" on SMEs.
In contrast, the Irish Banking Federation head Pat Farrell said the report had brought "clarity" to the issue of SME lending.
The need for a survey had been a key demand by the Credit Review Office's (CRO) John Trethowan, whose latest report was released yesterday as well.
The quarterly report from the CRO, which adjudicates on SME credit applications turned down by the banks, shows an increase in the number of cases coming before the office to 131.
Some €3.5m worth of credit has now been released by the CRO.