Banks may not reach lending targets
The country’s two main banks, Bank of Ireland and AIB, may struggle to meet the target of sanctioning €3.5 billion in new loans to small and medium-sized enterprises (SMEs) set for each lender, according to the head of the Credit Review Office John Trethowan.
The combined sanctions for SME loans during the first three months of the year were broadly similar to the figures for the first quarter of 2011 when they each had to sanction €3 billion in new SME loans, Mr Trethowan said at the launch of the office’s eight quarterly report since its establishment in April 2010.
It “may be a bit of stretch” for the banks to reach the €3.5 billion targets, he said. “They may not meet them but it is too early in the year to say that they won’t.” Lending traditionally picks up in the second half of the year, he said.
Each bank has to meet the SME lending targets under their recapitalisation agreements with the Government. Bank of Ireland has received €4.2 billion from the State, while AIB, which is in Government control, has received €20 billion in public funds.
The Credit Review Office, which was set up to hear appeals from SME customers who have been refused credit from the banks, have overturned 69 credit refusals out of 197 appeals the office received by the office from customers. This led to €6.9 million of credit being made available to SMEs and 683 jobs being supported. The office upheld the banks’ decision in 48 cases.
The office overturned 17 bank refusals in the last quarter, which led to Bank of Ireland and AIB providing €2 million of credit, supporting 140 jobs in the SME sector.
Mr Trethowan said that the banks were lending to existing customers on low to medium-risk cases but that the banks could take on a bit more risk with “the more difficult cases”. The banks need to ask if they are going to get their money back and if the answer to that is yes, then should think about doing the loans, he said.
“I am not asking banks to chuck their policies out the window but certainly to be more flexible,” he said. He was disappointed that there was not more evidence of support for “enterprise risk-taking” on new and increased lending by the banks.
“There needs to be some level of discretion around that to let bankers who can see a viable deal which may be outside policy to let them to make the loans,” he said.
Banks drove “a coach and horses” through their lending policies during the credit boom to the point where there were so many exceptions that there were no policies, he said.
“I am not suggesting that we get back to that madness but there is room for banks to be making policy exceptions for viable businesses which may not meet the strict criteria of the lending down on their credit policies,” said Mr Trethowan.
Only Bank of Ireland, AIB and Ulster Bank were lending to SMEs, while the other banks were not actively” making new loans to SMEs, he said, and this would be “an issue” in future. A new entrant in Irish banking providing loans to SMEs would be welcome, he said.
Business customers at what was formerly Bank of Scotland (Ireland) and Anglo Irish Bank, now Irish Bank Resolution Corporation, will have an issue “re-banking” to other lenders and dealing with the cost of transferring securities on the loans to other banks as the economy recovers, said Mr Trethowan, a former banker with 40 years’ experience.
He also expressed concern that the banks may lose staff with the skills, experience and relationship with SME customers in the upcoming redundancy programmes.
AIB’s head of business banking John Webb said that the bank was committed to reaching the 2012 target of €3.5 billion in new loans to SMEs.
“We have taken action to free up front line staff so they can engage more with our customers. We know we have more to do in this area, in particular, we are working to improve our response time to credit applications,” said Mr Webb.
The business group Chambers Ireland called on the banks to review their policies and procedures to avoid “a culture of credit refusals for SMEs” and to ensure they have staff with the “capability and experience to support risk and make loan approvals”.