Mark Fielding: The hackneyed 'eight out of 10' excuse is a sick joke to business
We must put an end to the fiction that our bailed-out banks are functioning properly now
Published 01/09/2013 | 05:00
LITTLE Johnny was being questioned by the teacher during an arithmetic lesson.
"If you had 10 euro," said the teacher, "and I asked you for a loan of eight euro, how much would you have left?"
"10," replied little Johnny firmly.
"10? How do you make it 10?" asked the teacher.
"Well," said Johnny, "you may ask for a loan of eight euro, but that doesn't mean you'll get it!'
When is an application for a loan not an application and when is a refusal not a refusal? For the last six years, since our glorious banks were 'found out', they seem to have major difficulties with their definitions. An application for a loan must be 'fully completed and formal' before they are counted. As a result, all 'informal' applications which are turned down are disregarded, leading to a claim that 'eight in 10' loan applications are successful.
The Jesuitical argument of "fully completed formal" applications is used to justify the 'eight in 10' contention, which is rapidly gaining the notoriety of Chamberlain's "peace in our time" and has now become the hackneyed catchphrase of the banks and a sick joke to business.
There is no doubt that banks are not lending to a level appropriate to an economy 'on the mend'. The statistics from our own Central Bank, the ECB and numerous economists demonstrate the dearth of appropriate credit. Last week the Central Bank issued its SME lending figures which once again showed a decline in lending of 5.8 per cent in the year to June.
We must put an end to the fiction that bailed-out Irish banks are functioning properly. Despite assertions from the banking PR machine, access to credit is abysmal, the application process is getting more torturous and businesses are not being told their rights under the Code.
While it is true that the ATM machines are still open, however, as for assisting the SME sector to grow, as for playing their part in the economic recovery, the banks are simply 'going through the motions'. Credit lines are being restricted, decisions delayed, deadlines missed and generally any bit of progress hindered, while the bankers themselves are slow to reform, re-educate or restructure.
Every economy needs an effective and efficient banking system to manage the transmission of money value. The real challenge at the moment is to get the banks to lend again to business of all shapes and sizes, vulnerable in the short term but viable in the medium. This aspiration runs totally against the efforts of the banks to become profitable again, after their recent near death experience. Banks need a balance sheet that has the required capital to loans ratios, which have gone completely out of kilter in recent years, with loans, both good and bad reaching stratospheric proportions. In a nutshell, the banks need more capital and fewer loans. So much for SME lending then, as our 'prudent' bankers see these small fry as more trouble than they are worth and more of a risk than they are now willing to take.
That's only the balance sheet aspect of lending, how about the profit motivation of bankers; never shrinking violets in that field. There will be massive pressure on the banks to make as much profit as possible in the next few years and they will revert to making their money from hiking interest rates and charges, as we have seen recently in the increases in cash handling and electronic funds transfer charges.
The only way that the banks are going to lend to small business is if they can get a return that covers their cost of funds and pays them a whopping premium for the risk involved. No wonder they need to be brought kicking and screaming to the SME lending table. No wonder the Minister for Finance has had to demand that €8bn extra be loaned to SMEs by both of the bailed-out banks involved over the next year.
Most of this lending activity is in debt restructuring to assist many businesses to survive. We have asked both banks to report the amount of 'new' money being sanctioned, and they are currently both 'amending' their systems to provide this information.
The target has apparently shifted from the fairly clear "new or additional credit" to "new sanctioned lending, including debt restructuring". In layman's terms, the €8bn will be mostly made up of pulling back overdrafts and issuing, if you're lucky, new term loans – very little 'new' lending.
The most recent ISME Quarterly Bank Watch Survey in June shows a welcome increase in demand for bank credit and a slight improvement in availability of bank lending; the best results in four years. Some 44 per cent of companies who applied for funding in the previous three months had been refused credit by their banks, an improvement on the 52 per cent in the previous quarter. Still a long way off the 'eight in 10' claim.
In addition, the demand for additional or new bank facilities had increased from 35 per cent to 41 per cent and the delays in decision making by banks had improved, with the average wait down to four weeks from the previous five. We welcomed the positive changes and urged the banks to continue to reduce their refusal rates to what was previously regarded as normal to assist the economic recovery.
What is really galling for many smaller businesses is the high moral ground being taken by the arrogant bankers and their spokesmen in their continuing to refuse credit, with their criticism of SME liquidity and profitability.
Isn't it an awful pity that they weren't as prudent with their own speculative trading over the past 15 years or more? It really is a bit rich to hear them deny, pontificate and fulminate while they themselves are on State assistance to the tune of billions. And they still persist with the 'eight out of 10' lie.
While the 'eight out of 10' excuse is rapidly gaining the status of 'the cheque is in the post', and as little Johnny might say, 'the dog ate my homework', small and medium enterprises are continuing to struggle without access to bank credit, with the resultant threat to thousands of Irish jobs.
Mark Fielding is CEO of the Irish Small and Medium Enterprises (ISME), which represents more than 8,750 members across all business sectors.