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Central Bank governor Patrick Honohan: 'Depleted personal wealth means that families who would once have been able
to support businesses no longer can. This makes the lack of bank credit a more serious drag on any recovery'

Central Bank governor Patrick Honohan: 'Depleted personal wealth means that families who would once have been able to support businesses no longer can. This makes the lack of bank credit a more serious drag on any recovery'

Central Bank governor Patrick Honohan: 'Depleted personal wealth means that families who would once have been able to support businesses no longer can. This makes the lack of bank credit a more serious drag on any recovery'

CENTRAL Bank Governor Patrick Honohan has admitted Irish companies are facing tougher credit conditions than "anywhere else in the euro area" -- despite the best efforts of regulators to ensure bailed-out banks lend into the real economy.



The stark comments from the Central Bank boss came at a Dublin conference where researchers from his office revealed that Irish SMEs were more than twice as likely to have their loans rejected as their peers across the eurozone.

They also found that 15pc of Irish firms report interest rates that are more than twice as high as the eurozone average (7pc), while the size of loans available to businesses in Ireland dipped by 28pc more than the average eurozone fall.

"The picture cannot be said to be favourable," Mr Honohan said.

"Credit conditions for SMEs are tougher in Ireland than anywhere in the euro area, both in terms of costs and availability."

Mr Honohan said the situation was particularly pertinent since "depleted personal wealth" meant that families who would have once been able to support businesses no longer could, thus making the lack of bank credit "likely to be a more serious drag on the recovery than it might otherwise be".

And he stressed that even though the breakneck economic growth in the 1990s wasn't accompanied by higher levels of bank lending, that didn't mean the economy doesn't "need much credit" to get back on track.

"The recovery will need to maintain and strengthen the resumed relative importance of the export sector, including new sub-sectors, and an increased share of Irish-owned firms alongside multinational companies," he said. "These trends may well call on locally provided credit to a greater extent than in the past."

His comments echo what SMEs up and down the country have been claiming for years, and come despite the authorities repeated promises to ensure that bailed-out banks would step up to the plate and lend.

Mr Honohan insisted the authorities were doing "a whole lot", including giving unprecedented levels of liquidity to banks and making sure that institutions shrink their balance sheets by selling off non-core businesses rather than restricting credit.

But he stressed that the role of the authorities was, by definition, limited. "In any market economy, we rely on banks and other financiers to make the right underwriting decisions and this is what needs to be right as the recovery expands," he said.

A spokesman for the Irish Bankers Federation last night said that the "focus" of his members was "very much driven" by the recent Mazars report and the issues it had thrown up, adding that the Central Bank research had a "smaller sample size" than that of the Mazars study.

Based on surveys with 1,200 companies, the Mazars report found that banks were lending but that more needed to be done to encourage applications.

The European comparisons referenced yesterday were drawn from ECB surveys that included 500 Irish responses.

The eurozone research also found Irish businesses' demand for credit was "marginally lower than the euro area average", though Irish companies did show above-average demand for overdraft and trade credit.

Profitability

A separate Central Bank study on the impact of the eurozone crisis on lending found that "larger and older firms" face the "lowest risk of having loan applications rejected" -- though firms underestimate the significance of their age and size when they talk about their credit prospects and instead believe that their profitability was the key determining factor.

The researchers also found that the level of debt companies have "affects all aspects of SME financing, from demand and supply, to terms and conditions", while sovereign bond yields affect "supply and the terms and conditions" of lending, and the real economy affects credit demand but not supply.

"The findings point to a worrying and potentially long-lasting impact of the credit boom on countries with high-indebted private sectors," the research concluded.

Irish companies are amongst the most indebted in Europe, with property loans weighing particularly heavily.

Irish Independent