BoI, AIB 'to meet SME lending target'

The head of the Credit Review Office says he expects lending by Bank of Ireland and Allied Irish Banks to small and medium-sized businesses to be “in or around” the €3 billion target for the year after they were encouraged to lend more.

Publishing the sixth quarterly report of his office, John Trethowan said that the office had pressed each of the banks to meet the Government’s €3 billion SME credit target for the year after he said in August that they would find it difficult to meet the target. He said that they had since identified new business to lend to.

“They have been trying to up their game over the last few months as well,” he said, adding that the seasonal nature of lending during the quieter summer period had previously made the chances of reaching this year’s target “challenged”.

Mr Trethowan said that the demand for new credit for SMEs was mostly for restructured loans such as converting an overdraft to a term loan. This type of lending should not be discounted, he said, as if it was not available, businesses “would be in shatters”.

From April 2010 to October 2011, the office has overturned 41 cases out of 131 it had reviewed where credit had originally been refused by the two banks.

The office upheld the banks’ decision to refuse credit in a further 36 cases and more work was required by the borrower or the bank or the customer withdrew the application for credit in another 18 cases. Work was still being carried out by the office in a further 36 cases.

In the 41 overturned cases, the banks provided credit of €3.5 million where Mr Trethowan estimated that 417 full-time and 21 part-time jobs were protected as a result of the credit provided. Some 22 of these cases related to Bank of Ireland loans and 19 to AIB.

Mr Trethowan said that the office was working with two banks and Ulster Bank, which together account for 75 per cent of SME lending, on creating a standard application form to help businesses secure credit.

Citing the credit demand survey published by the Department of Finance earlier today, Mr Trethowan said that SMEs were operating in a “highly challenging environment” given that only 43 per cent of the 1,506 firms surveyed were making a profit.

Mr Trethowan criticised the banks for not offering better solutions or deals to businesses seeking credit when lenders were being “much more creative” in helping customers in difficult by restructuring loans. The banks were very strictly adhering to credit policy when it came to new lending, he said.

Banks were doing “a poor job” when it came to explaining how they priced loans to SMEs based on their own cost of funding, which included paying more for deposits.

He predicted that there would be a greater demand for credit for 2012 and into the longer term as business customers at Bank of Scotland (Ireland) and what was formerly Anglo Irish Bank would look to get “re-banked” with new lenders as they were run down over time.

Mr Trethowan found that AIB had overturned or sanctioned loans in 84 internal reviews of cases out of 216 applications where credit had been refused, while Bank of Ireland had overturned just 11 out of 169 refusals that were refused internally.

The difference in the figures was due to the fact that Bank of Ireland had “a second set of eyes” reviewing a credit application before it went to the bank’s internal review process.

Mr Trethowan said that his office was dealing with two loan cases a week. Some 1,231 calls had been made to the office helpline since April 2010 and there has been 11,257 visitors to the office’s website.