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Hitting the right bank lending targets?

ARE the banks lending or not? This is a frequent debate held in Ireland at the current time.

The banks say that they are open for business, while lobby groups such as the Irish Small and Medium Enterprises (ISME) continue to believe that credit supply is still very much an issue for their members.

Both believe they have justifiable evidence to back up their claims, but both cannot be right.

The banks, specifically the pillar banks (AIB and Bank of Ireland), point to the latest review from the Credit Review Office by John Trethowan for support in their claims.

That report stated that both pillar banks achieved their €3bn lending targets in 2011.

Late last month though the Central Bank stated that new lending to SMEs among all the banks resident in Ireland amounted to only €3.1bn.

The large discrepancy between the two sets of numbers can be partly explained by the fact that it is comparing apples with oranges.

First of all, the €3bn target set for AIB and Bank of Ireland refers to sanctions for loans, whether or not they are drawn down.

Secondly, restructuring of existing loans is counted as a "new loan" in the €3bn targets.

In fact, John Trethowan recognises that the majority of the €3bn in new loan sanctions were in fact restructuring of existing loans.

It is little wonder then that policymakers were somewhat confused at a recent Oireachtas Committee hearing where CSO and Central Bank representatives were asked to present on the topic of lending to SMEs.

The Central Bank data is quite clear on the issue. New lending is defined as either a new loan or an existing loan where a restructuring leads to an increase in the amount of principal owed.

Access to revolving facilities (working capital etc.) is important, but the Central Bank method of calculation tells us more about the role that credit is playing in economic recovery in Ireland.

It's high time that the targets for lending were set in a more transparent way so that the public can get a true picture of the scale of new lending being provided by the banks.

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