Monday 11 December 2017

Maeve Dineen: Time for banks to give something back by extending credit

Maeve Dineen

Credit is the oxygen that any small business needs to survive and thrive. Across the country, the air is pretty thin, as business owners complain of huge hurdles to getting badly needed loans.

Financial consultants Mazars will this morning present yet another report into bank lending to small and medium enterprises (SMEs). Not a day goes by that we don't hear SMEs bemoaning the banks' lack of lending. In contrast, the banks insist they are open for business and are continuing to supply credit to viable enterprises.

Therefore, every report on lending presents a collision of irreconcilable points of view: banks claim they are lending; but businesses argue they are not getting much-needed cash.

No doubt this morning's report will show that banks are indeed lending, but the key difference is fewer companies are meeting their stricter criteria: the capacity of the business to service its debt; a pipeline of confirmed orders; and the track record of the people backing the business. Firms without revenue, with lots of debt or insufficient capital simply get turned down.

The banks' desire to sort out their balance sheets has understandably discouraged them from lending. This isn't surprising. After all, no one wants to be the next banker up for vilification. However, the restrictions on lending have gone too far, they are now hitting growth.

In other words, many companies are still doing whatever they can to pay off bank loans, as opposed to investing in working capital or new equipment.

Banks appear to be making no distinction between businesses that need help to grow and thrive, and those fighting to survive. Meanwhile, government initiatives to revive lending have been underwhelming.

As a condition of the bank recapitalisation plan, Finance Minister Brian Lenihan insisted that AIB and Bank of Ireland provide up to €3bn in credit facilities to SMEs in both 2010 and 2011.

While the Government is anxious to stay at arm's length from specific lending decisions, the larger the government supports become -- and they are now enormous -- the greater the demand for specific commitments in return.

It's also difficult to see how the establishment of the new state-backed credit review committee will have any impact, considering it has no formal statutory role. The new head of the committee, John Trethowan, is confident the new body will result in a change to banks' lending practices, but no one else is.

We need a more ambitious vision for our SMEs in the decades ahead. The post-recession economy cannot resemble the one based on property, retail and financial services that has collapsed.

Our primary objective right now should be to put our economy back on track -- and while the economic climate is bleak, it is not all bad news. Business conditions around the land have, in general, stopped becoming worse and in some cases are improving. Last month, for the first time in almost three years, Irish firms showed an improvement in business confidence, along with employment, investment and export values.

A number of business surveys and indicators are signalling growth again. The economy may have bombed out, but the sheer grit and determination of the country's SMEs will play a key part in leading us out of the maelstrom.

They can only do so much without the support of the banks and they are blue in the face from hearing "credit will start flowing" once the banks sort out their bad loans and clean up their balance sheets.

Having pumped billions into the country's banks, let's hope this morning's lending report reveals that businesses are breathing a little easier and that cash is being given back out.

Irish Independent

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