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Property rap for SMEs

SMALL and medium-sized businesses (SMEs) have been criticised for their over reliance on property investment, which is discouraging banks from lending.

However, the Credit Review Office has found that there is no evidence that AIB and Bank of Ireland are constraining the supply of credit to any sector of the SME market.

In his first quarterly report to the Minister for Finance, credit reviewer John Trethowan said the two banks were lending to viable businesses.

The Government has revealed a €12bn lending plan by the banks aimed at the sector.

Mr Trethowan said that some business owners used their profits to invest in rental properties during the boom.

"As a result, these businesses are now deprived of the cash reserves that would have assisted their survival in the downturn,'' he said.

However, his report raised concerns about some practices in the banks, including a lack of experience among some front-line bank staff in dealing with SMEs, as well as anecdotal reports of banks requesting that borrowers hold on deposit the same amount of money that they have requested for overdraft facilities.

Finance Minister Brian Lenihan, meanwhile, threatened to force banks by law to lend money to viable businesses.

Where the credit reviewer found a bank was wrong to refuse a loan to a business, Mr Lenihan said he would make them provide the credit.