Report warns of tighter lending
More could be done by banks to help small and medium-sized enterprises and farmers to access finance, John Trethowan of the Credit Review Office has said.
In his ninth report, issued today, Mr Trethowan said that, while Allied Irish Banks and Bank of Ireland continue to report that more than 80 per cent of formal loan applications are sanctioned, he continues to hold the view that lending policy has tightened in 2012 for more challenged SMEs and farms. He said the cases reviewed by his office showed that more could be done to assist access to credit. The loans that were sanctioned contained “a substantive level of restructuring of lending, including some refinancing of the former BOSI and Anglo lending,” he said. “Some of this goes to explain why the figures differ from Central Bank reporting.”
The office was set up to give SMEs and farmers an independent opinion on refused applications. Over the past three months, the Credit Review Office has received 36 eligible applications from SMEs refused credit by AIB and Bank of Ireland. Of the 21 cases completed in this quarter, 14 bank refusals were overturned resulting in the two banks subsequently supplying €1,180,224 of credit.
Since the establishment of the office in April 2010, 96 of 207 applications for credit that were refused have been overturned, according to Mr Trethowan.
Failed harvests around the world have already spiked input prices for the farming industry and banks will need to support the industry through a very challenging period ahead, he said.
For businesses seeking credit, Mr Trethowan urged that formal written applications are made in all cases. “It is vital SME and farm owners do not feel dissuaded from applying for credit either through the comments or actions of a few bank frontline staff, or by negative commentaries in the media.”
He said he was “somewhat disappointed” by the banks’ reaction to his previous report. “All of my reports have always given credit for the lending and support for the SME sector which is taking place, by the pillar banks and also Ulster Bank,” he said.
But speaking on RTÉ Radio One this morning, Irish Banking Federation chief executive Pat Farrell said one of the problems was that there was a high level of distress across the sector.
“The granting of credit is not a frivolous activity. Banks want to know that they’re going to get their money back and they want to know the business has a sustainable future,” he said. “I think in that situation, there’s always going to be an inevitable tension in terms of on one hand the information that one needs from a business, and on the other the making of the credit decision.”
Mr Farrell said there were improvements that could be made, and the banks had implemented some recommendations from the Credit Review Office reports.
He urged businesses to make formal applications for credit.
"Banks have capacity, banks are able to lend to companies that have sustainable businesses," he said.