Irish banks second only to Greece for refusing loans
The Irish Banking Federation has rejected the findings of a Central Bank report that claims Ireland is second only to Greece in terms of refusing loans to small businesses.
The Central Bank report published this morning found that Irish banks reject more business loan applications than any other state in the euro zone except Greece, with small and medium businesses in Ireland twice as likely to have a loan application turned down as the average across the region.
Speaking on RTÉ Radio One this morning, chief executive Pat Farrell said the report did not compare like with like, as the surveys had not been carried out according to the same templates across the euro zone.
“The definitive report on this area is the Mazars report, and that sets out clearly the fact that banks are lending to small businesses,” he said.
“We now have a situation where the Department of Finance and the Government is definitively standing behind the Mazars report, and now we have this report coming out of the blue sky from the Central Bank which on the face of it seems to be saying something completely different,” Mr Farrell said.
However, the Central Bank report is based on the Mazars report.
A spokesman for the IBF later said the group had some fundamental concerns about the report and it would require further analysis. He cited the size of the sample used in the study, and also raised questions about whether the asset quality of the those applying for loans had been analysed.
The report found that more than one in four businesses seeking a loan or an overdraft were rejected in the six months to March, more than double the euro average and compares with one in 28 in Germany.
While some teetering businesses which seek credit have little chance of repaying loans – and thus have to be refused them – the new study says that “high rejection rates in Ireland cannot be explained by the quality of the pool of potential borrowers”.
A related finding that will raise hackles in the business community is that, within the euro zone, Ireland has the second-highest share of “discouraged business borrowers” (companies that do not apply for a loan despite requiring credit, for fear of rejection).
Proportionately, the number of discouraged borrowers is double the euro area average.
The IBF has attributed drastically reduced new loan issuance to weak demand from small and medium-sized enterprises (SMEs).
Today’s report finds that this claim is dubious.
The country’s largest group of financial brokers PIBA said the report "lifts the cloak of pretence" surrounding bank lending.
"The findings in today’s report are indisputable. The tragedy is that it has been going on for far too long and indeed worsened in the first quarter of this year over the last quarter of last year," said Rachel Doyle chief operations officer at the association.
"Now that the Central Bank’s own report confirms the reality, it is to be hoped and expected that they would act to bring about change rapidly."
Chambers Ireland said the report highlighted that Ireland had some of the “harshest lending conditions” in the euro zone and it was concerned “at the high level” of businesses not applying for loans for fear of rejection.
It said it was time for the Government “to agree its line on lending conditions and ensure that all banks follow suit”.
“The Government needs to set the standard for lending through the terms of its Enterprise Loan Guarantee Scheme which must be implemented without further delay,” Chambers Ireland deputy chief executive Seán Murphy said