Friday 24 November 2017

We bailed the bankers out: it's their turn

Access to credit is a lifeline for small businesses -- and the people they employ, says Louise McBride

HELP WANTED: Levina Reeves had to close her gallery in Church Street, Athlone, because of a
lack of cashflow. 'It was very hard, closing the doors on that last day.' Photo: Jeff Harvey
HELP WANTED: Levina Reeves had to close her gallery in Church Street, Athlone, because of a lack of cashflow. 'It was very hard, closing the doors on that last day.' Photo: Jeff Harvey

IT'S about five months since the Westmeath artist Levina Reeves was forced to close her art gallery on Athlone's main street after her bank pulled her overdraft.

Reeves had set up Reeves Art Studio about 16 years ago -- and then, 13 years ago, she opened her gallery on Church Street in Athlone. Reeves said the loss of the overdraft was the main reason she had to close her gallery, as it left her with no purchasing power to buy the stock needed to keep her business going. "My business needed an overdraft as cashflow," said Reeves. "As my suppliers were strangled, they were insisting on upfront payment before they'd deliver anything. So I had customer orders but I couldn't fulfil them."

Reeves, who has since set up her business from home, had employed 14 people before she closed her gallery on the main street. She has not taken on anyone since.

"I would never feel comfortable employing anyone because of the way I came out of this," said Reeves. "It was very hard, closing the doors on that last day."

Reeves was bemused at a finding by the government-appointed Credit Review Office (CRO) that almost nine out of 10 business loans were approved by AIB and Bank of Ireland last March. She is unlikely to be the only small business bemused by this.

In a report published last week, the CRO claimed that a fall-off in demand for business loans is the main reason AIB and Bank of Ireland will miss a government target to lend €3bn each to small and medium-sized businesses this year. The Irish Small and Medium Enterprises Association (ISME) described the claim as "arrant nonsense".

"It is an absolute disgrace and highly irresponsible of the banks to claim, and the CRO to support, the view that small and medium-sized businesses are not demanding credit," said Mark Fielding, chief executive of ISME. "Access to credit remains one of the most significant barriers for business and the lack of credit is directly responsible for hundreds of company closures and thousands of job losses.

"The banks are shoring up their balance sheets. They're not giving money out the way they did to viable businesses before. The vast majority of businesses who approach their banks are being told by the bank manager not to come near the bank with a credit application. That, to an owner-manager, is a refusal."

Although the Irish Banking Federation (IBF) agrees that banks are clearing debt off their balance sheets, it insists they continue to lend to "viable" businesses while doing so.

"We are in the course of a major transition from the Celtic Tiger relationship between banks and business customers to the more realistic relationship of today," said Felix O'Regan, director of public affairs with the IBF.

"Banks are working at it and heading in the right direction -- and, equally, businesses have to work at it too. There is also a perception that there is no point in businesses going to their lender for credit, because they won't get it."

John Trethowan, the head of the CRO and a former banker, last week questioned the quality of the loan applications being put forward.

"There appears to be a disparity on the level of information banks now expect from their borrowers, and the recognition of what is required and the ability to provide such information from some small businesses," said Trethowan in his report.

Whatever the reason for AIB and Bank of Ireland missing their business lending targets, the late Finance Minister Brian Lenihan set those targets in July 2010 because he realised the Irish economy had no chance of getting back on its feet unless the banks started to lend to small businesses again. Lenihan also realised that jobs would continue to be threatened if businesses were starved of credit. He was right. Many small businesses-- like the one run by Levina Reeves -- have been forced to shut down and let people go after banks pulled their credit line. Like Reeves, they've been bruised by the experience -- and may never hire people again. So it's no surprise that our unemployment rate continued to tick up last month -- and that there are almost half a million people on the dole.

AIB and Bank of Ireland have both been bailed out with billions of euro of taxpayer money -- the Irish economy and people deserve something worthwhile back from them in return. Meeting their €3bn business lending targets is the least they can do.

Sunday Indo Business

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