Banks lend €8bn to SMEs

AIB and Bank of Ireland have lent €8 billion to small and medium business in the last year, €2 billion more than government targets, according to the latest quarterly report from the Credit Review Office.

The two main Irish banks – which are responsible for about 60 per cent of the lending market – had been required to lend €3 billion each to SMEs this year, as a condition of the State's support for the banks. According to figures from the Credit Review Office released today, the two banks have lent €8.063 billion, though this includes restructuring as well as new lending.

The fourth report on the activity of the Credit Review Office, which is led by John Trethowan, show that the office has reviewed 76 applications since it was set up just over a year ago. In 22 cases, the bank's decision was upheld, while in 23 cases its decision was disputed and the bank subsequently provided credit. The remaining applications are still at different stages of the review process.

The Credit Review Office, a non-statutory body, was established by the last Government in April 2010 in response to concerns that viable businesses were being denied credit by banks.

Businesses that have had their application for credit refused or reduced and feel that the bank's decision is unjustified can apply to the office once the borrower has already gone through the bank's own internal loan appeals process.

The office reviews loan applications made by SMEs, farm owners and sole traders up to the value of €250,000, though Mr Trethowan is calling for the €250,000 cap to be lifted to €500,000.

The report from the Credit Review Office also shows the outcomes of the banks' formal internal appeals procedure. It found that out of a total of 228 appeals in the last year, 172 upheld the banks' original decision, while in 40 cases the decision was overturned or sanctioned with conditions.

The Credit Review Office has received 823 calls to its helpline to date, which have resulted in the resolution of certain issues bypassing the need for a formal appeal.

John Trethowan said the review process application forms have been redesigned in order to minimise the time and effort required by borrowers to have a credit refusal appealed. In response to some criticism that the credit reviewers were former bankers, a separate panel of non-bankers has been assembled to separately overview any appeals upheld in the banks' favour.

The Irish Banking Federation (IBF) said a number of recommendations in the report merit consideration, including ways in which assistance can be given to SMEs to allow them to better establish their current and future viability; and the recommendation for research on SME credit supply and demand to be jointly commissioned by Government, business and banking groups.

However, small business group Isme said it was disappointed with the report's findings.

"The Credit Review Office, introduced as an appeal mechanism, is not working, as evidenced by the paltry number of cases, six applications a month referred, during a time when small business is struggling," said Isme head of research, Jim Curran.

"It is naïve in the extreme to think that an appeals process which is not totally independent of the banks can be effective. Owner managers just see it as another layer of bureaucracy, with fears still remaining that using the service will ruin already fragile banking relationships."