Branch closures and desk-based decisions stymie the flow of credit
Banks no longer make the effort to get to know small and medium-sized firms when they apply for loans, and it has long-term consequences, the head of the agency tasked with monitoring credit for SMEs has said.
Bank officials are making loan decisions sitting behind desks rather than face-to-face, John Trethowan, the head of the Credit Review Office, said.
And he warned the closure of bank branches across the country could be the cause of lower demand for SME lending.
"There's too much reliance on desk-top analysis by banks. Banks are taking yes/no decisions based on financial accounts. Some are based in Dublin and they haven't spoken to the borrower to try and understand their business."
In his latest report, Mr Trethowan said a persistent finding in the Department of Finance SME credit demand surveys is that there has been a decline in the demand for bank lending, from 40pc in 2013 to 23pc now.
"I think people aren't borrowing because they find it too hard, and that relationship has been lost," Mr Threthowan said.
He said the firms the Credit Review Office have spoken with say they want somebody to listen to them, and understand their business.
In his report, he pointed out that loan assessment by the banks is now dominated by numbers, ratios and credit bureau history, "with minimal reliance placed on the borrower's track record with the bank".
"Little effort is now made to get to know the business, the sector it operates in and the business's future prospects, and both SME and farm borrowers remain largely unprepared for the levels of financial information which all banks now require to assess their loan applications."
Accountants and financial advisers are now more likely to tell clients to consider alternatives to the banks, the report found. Extra cash in a business is likely to be used to reduce bank borrowings, rather than fund expansion plans, it found.
"The banks need to get these professionals back onside to increase their lending, but seem to be making little effort to do so," the report stated.
Mr Trethowan said that while he doesn't have much interaction with vulture funds, they are getting harder to deal with regarding SME debt.
"These funds, they aren't based here, their objective is to return equity for their investors, and they aren't wedded to Ireland inc," he said.