Banks unlikely to hit lending targets as loan demand falls
Lending-approval target to be met by both AIB and BoI
A lack of demand for loans means AIB and Bank of Ireland are unlikely to meet their lending targets to small businesses, a new report from the Government's credit czar has found.
According to the latest quarterly report from the Credit Review Office (CRO), which oversees lending to small and medium enterprises (SMEs), the rate of credit applications to AIB and BoI is so low this year it will be a "challenge" for the banks to meet their target of €3bn each in lending approvals.
If the target is missed, however, it will be due to a lack of demand and not the banks refusing applications, despite small business groups' claims to the contrary.
In the report, CRO head John Trethowan said the "slowdown in demand, coupled with high repayment inflows on existing lending, was reflected in a contraction of the SME loan books as existing loans continue to be repaid at a faster pace than new loans are being demanded.
"The rate of credit sales and sanctioning is lower this year than the figures from the previous year, and it will be a challenge for each of the banks to reach their €3bn sanction target for new and restructured facilities in the current year.
"It may be that some of the term-loan restructuring activity conducted last year has dealt with the issue and consequently has fallen out of this year's sanctioning figures," he added.
Overall, the CRO has now released some €2.5m worth of credit, protecting 366 jobs. It has upheld bank decisions to refuse credit in 27 cases, with SMEs being denied some €1.8m in credit.
Mr Trethowan renewed his call for a comprehensive lending survey in order to get a handle on the SME sector overall.
"Until the demand for credit is fully understood, there is little point in some commentators being fixated on the amount of new credit as opposed to restructuring sanctions. It is obviously impossible to grow new credit in an economy where such credit is not being demanded," he said.
The report was condemned by Small Firms Association head Patricia Callan: "It is unacceptable at a time when access to finance remains the single biggest issue for the small-business community that the banks claim that the reason they can't lend is because there is no demand. The banks must improve their efforts to communicate with customers."