Credit squeeze tightening, says Isme

THE RATE of credit refusal at Irish banks has risen again this quarter, reversing improvements in approvals in the previous two quarters, according to small business group Isme.

A survey of its members found that 54 per cent of the companies’ credit applications had been turned down by banks in the last three months, said Isme, compared to a rejection rate of 50 per cent in the previous survey.

The lobby group said demand for loans from its members had increased during this time, with 37 per cent of small and medium-sized enterprises (SMEs) seeking access to credit, up from 31 per cent in the same quarter in 2011.

Isme, which has been critical of levels of bank lending to businesses since the sector was bailed out by taxpayers, also reported increased charges and interest rates. The association called on the Government to intervene at board and management level to ensure that lending is approved to viable SMEs.

“When it comes to assisting the SME sector to grow, the bailed-out banks are continuing to make it difficult for SMEs to access finance, thereby hindering the economy,” said Isme chief executive Mark Fielding.

Isme said its quarterly bank survey, conducted in June, attracted 706 responses from its members, a response rate of 19 per cent. Almost nine in 10 of the respondents are customers of their bank for more than five years, while 44 per cent are customers for more than 20 years.

Of the 46 per cent who saw their credit applications approved, two-thirds have drawn down the finance either fully or in part.

About half the requests were for overdrafts, with the other half relating to term loans or changes to existing credit facilities.

Almost all the respondents said the Government was having a negative impact or no impact on levels of SME lending.

Isme’s claim that businesses are finding it tougher to access credit reflects official figures from the Central Bank, published last week, which revealed that lending to SMEs fell 6.3 per cent, or €1.7 billion, in the first quarter of the year compared to the same period in 2011.

However, while lending to property-related businesses declined, lending to SMEs in sectors such as agriculture, energy and education has increased.

A Central Bank credit survey published in April also noted that businesses were finding it harder to get loans from banks, with banks citing lower levels of economic activity, less favourable industry or firm-specific outlooks and increased collateral risk as reasons for tightening credit standards. They also noted an increase in banks’ cost of funds and balance sheet constraints in respect of lending to bigger companies.