A powerful Oireachtas committee will demand that pillar banks tell business owners about the appeals process if their loan applications are turned down.
The Oireachtas Finance Committee yesterday agreed to write to the chief executives and chairmen of Allied Irish Banks and Bank of Ireland, as well as the Department of Finance and the Central Bank, to demand the banks dramatically improve their appeals process for small- and medium-sized companies.
Both banks have agreed to refer a small business to the bank's own appeals process and then the Credit Review Office (CRO) if it turned down a loan. However, it has emerged that few companies are being made aware of the CRO by the banks.
Yesterday, committee chairman Ciaran Lynch said they needed to make it clear that the banks must ensure clients understand the process available to them.
The problems with the banks emerged yesterday as CRO head John Trethowan appeared before the Finance Committee.
"Too high a proportion of SMEs didn't know about internal appeals and the CRO so the banks need to do more in that regard," he said.
In response to a question from Fianna Fail's Michael McGrath, Mr Trethowan admitted that he was "deeply concerned" with the lack of competition in the Irish banking sector. "I would be very concerned about that. Three providers is not enough for any economy and competition between three is not good competition.
"There has been crowd finance but I don't see the entrance of any major players into the Irish market any time soon," he said.
The lack of competition in the sector has also had an effect on whether SMEs actually lodge an appeal in the first place, Mr Trethowan believes.
"Many firms don't appeal because they are weary of the process but people are also terrified of not having a bank – there are only three banks here and they could feel isolated if they fall out with banks.
"We have been assured no bank will victimise their customers but that is an issue," said Mr Trethowan.
The CRO has a formal mandate to work with AIB and Bank of Ireland.
Although it deals informally with Ulster Bank, Mr Trethowan told the committee that Ulster had turned down the option of joining the CRO process.
Numerous surveys of the SME sector have shown lending rates close to the historical average in the industry, but Mr Trethowan repeatedly highlighted the need to kickstart demand throughout the economy to get the banks lending again.
"Confidence will get things going again. If people are confident in their business, they will look for more ways to expand their business and this will have the knock-on effect of getting things going in the SME sector, but without a recovery in the wider economy that will be absent."