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State credit tsar not convinced by loan guarantee scheme


John Trethowan credit reviewer.

John Trethowan credit reviewer.

John Trethowan credit reviewer.

ANY loan guarantee scheme (LGS) for small business would have to be "very targeted and strictly controlled", head of the Credit Review Office (CRO) John Trethowan said yesterday.

Several trade groups have called for an LGS but Mr Trethowan, who is personally against such a scheme, claimed the idea that it would act as a panacea for small firms was misplaced.

"There is a perception that a scheme would solve a lot of problems for SMEs, but if properly enforced it will only replicate what the banks should be doing in the first place. An LGS will not save a business that is not viable.

"Indeed, it could only have been used in two of the cases that have come across my desk," he said.

Mr Trethowan was speaking at the launch of the Credit Review Office's third quarterly review, which covered the three months to the end of last year.

According to the report, the office has dealt with 48 applications since last April and has completed the review process on 30 applications.

Of those 30, the bank's decision was upheld on 18 occasions; while the CRO disputed the bank's decision 12 times, ensuring €978,300 got through to SMEs. Around €1.3m was refused. While the number is relatively low, Mr Trethowan said the number of applications had increased to two to three a week since Christmas.

The CRO reviews credit applications that have been refused by the banks but are being contested by the applicant. These reviews are carried out on loans that have already gone through the bank's own internal appeals process, making the CRO effectively the final decider on potential applications. Mr Trethowan's office formally covers Allied Irish Banks and Bank of Ireland only.

Internally, both banks have dealt with 170 internal appeals, overturning the original refusal on 27 occasions.


The banks remain on track to meet their SME lending targets of €3bn each a year until 2012, though that target includes debt restructuring as well as "new" money being released. The report added the current refusal rate of some 20pc is about in line with the traditional level.

Mr Trethowan said that while the number of potential bad debts on SME balance sheets was a worry, he disputed the accusation that a lack of publicity was holding back the CRO.

"The two banks are compelled to inform a credit applicant of the existence of my office when they are rejected by the bank so everyone that needs to know about what the review office does.

"The one thing we can't emphasise enough is that the CRO only deals with formal credit applications. By definition we cannot know about an informal chat with the bank -- I would encourage SMEs to make their claim in writing all the time."

The Small Firms Association (SFA) described the report as "very balanced" but reiterated that firms were still struggling to get credit.

The Irish Small and Medium Enterprises Association (ISME) slammed the report as proof the CRO was "seen as the banks' public relations organ" but the Irish Banking Federation welcomed it as evidence that the banks are lending to viable SMEs.

Irish Independent