Mave Dineen: My advice for the quango-like CRO
IT walks like a quango, talks like a quango, quacks like a quango. How else would you describe the Credit Review Office?
Set up nearly three years ago to "force" the banks to lend to small businesses, the agency is still struggling to get credit to hard-pressed business.
As we face into another tough Budget, with little or no economic growth, it's becoming blindingly obvious that the gamble of bailing out banks instead of their customers just isn't working.
The first lesson in economics is that in a recession you do not waste money trying to boost investment when there is no demand to sustain it. You go for liquidity. You put cash into circulation. You don't increase VAT but push prices down, rather than up. You give away pensioner coupons and vouchers or invent scrappage schemes. Give money to those who will spend it like the unemployed. We know what the banks will do with it; put it in a safe.
Every lending survey (both nationally and internationally) proves that Irish businesses aren't getting credit despite the billions that have been pumped into banks.
It is not the fault of the Credit Review Office (CRO) that the banks are not lending here – the office is small and the banks are big and powerful so something has to be done to tilt the balance in the CRO's favour.
This week, Finance Minister Michael Noonan called for submissions from small businesses on how the CRO can better serve their needs. Here are my suggestions:
• Send mystery borrowers into the banks. The Credit Review Office should send in people with rock-solid business cases and see how they are treated by the banks. Shops routinely employ mystery shoppers to keep staff on their toes. Why not see what the banks get up to behind closed doors?
• Give the CRO formal powers over lending. Right now it can only recommend overturning the loans. If it has the last word regardless, it might encourage more SMEs to approach them.
• Name and shame the banks and bank managers who are not lending.
• Insist they provide real and detailed reasons for not lending. At present, there is a scandalous situation where a quarter of small firms are being refused loans without any explanation.
• Give proper timeframes for replying to applications. The banks are taking a month to make a decision on some applications. This is highly unfair on businesses trying to plan for the future and twice as long as the Government's guidelines.
• Break down the €4bn lending target by sector. Tell the banks how much each sector should get and then make sure they stick to it.
• Expand the CRO's role beyond just the two main pillar banks – AIB and BOI.
• Promote the CRO more vigorously. Advertise in bank branches. The number of cases referred to the CSO is tiny when compared to the level of credit applications and refusals of the two main banks. In most cases where formal applications were declined, the bank does not inform the borrower of the right to an internal review.
• Hire more reviewers. The CRO began with about 10 credit reviewers employed on an ad hoc basis. That's now fallen to around five. It needs more reviewers if it's going to take more cases.
• Finally, if the CRO is not doing its job then it should be shut down. There is no point in flogging a dead horse.