AIB and Bank of Ireland say they are sanctioning nine out of 10 applications for credit, write CIARÁN HANCOCKand COLM KEENA

IF YOU talk to the two big banks about their lending to small and medium-sized (SME) companies, you’d be forgiven for wondering what the hullabaloo about Nama is all about.

As the banks tell it, they have sufficient capacity at present to meet the demand for credit from the business sector, which is somewhat less than 12 months ago. This view has been endorsed by an independent report for Government by accountants Mazars, which said that credit in the sector fell by 42 per cent in the nine months to the end of February.

So why are taxpayers providing a €54 billion bailout to our financial institutions?

SMEs, or course, are only one part of the equation.

Speaking to The Irish Timesyesterday, Tánaiste Mary Coughlan said: "Nama is the best option in my view, and as Minister for Enterprise, Trade and Employment, the thing that is hugely important to me is that we get liquidity into our banks and that we can lend to business."

The Minister was unable to shed any light on how much might be made available to SMEs, or when this money might start flowing from the banks.

“I don’t really have a timeline, because as you know this is going to be an evolving thing.”

Similarly, a spokesman for Minister for Finance Brian Lenihan said no firm figure has been required of the banks for lending to SMEs. “He would like to see a significant amount placed out there in the economy,” the spokesman said.

According to AIB and Bank of Ireland, there is no shortage of money available to SMEs at present. “We are sanctioning nine out of every 10 applications [for credit],” said Denis O’Callaghan, AIB’s general manager of retail and SME business, adding that the Mazars report backs up the bank’s figures.

“Eight out of 10 enquiries to AIB result in approval.”

Part of the problem, according to the Irish Small and Medium Enterprises Association (Isme), is that many business owners simply are not applying for credit, either because they have been advised unofficially not to, or because they are afraid of being rejected.

“That’s exactly what’s happened,” said Mark Fielding, Isme chief executive. “A lot of our guys will step out of the process because they are being asked for too much in terms of collateral.”

Figures released on Wednesday by Brian Lenihan showed that AIB had provided €859 million in the first half of this year, from €1.3 billion worth of credit sanctions.

Bank of Ireland reported drawdowns of €1.5 billion over the same timeframe.

The pair opened more than 16,000 new business accounts in the six-month period, which was down on 2008.

In July, Bank of Ireland’s head of retail Des Crowley told the Oireachtas Joint Committee on Enterprise, Trade and Employment that the bank is committed to the SME sector.

“It is a crucially important sector for the success of the Irish economy, and we will support viable enterprises both now and in the future,” he said.

“In doing so, we assess business proposals with great care to try and ensure that we support those with the potential to be viable, productive and sustainable in the future.”

In a trading statement yesterday, Bank of Ireland said demand for new credit “remains muted across all portfolios, reflecting the weak economic conditions”.

“SME lending activity has reflected a reasonable flow of new lending opportunities.”

Part of the problem is that many SMEs are no longer viable businesses.

“If we think a business is viable, we will help them get back on their feet,” AIB’s O’Callaghan said. “We have to recognise that there will be businesses that we cannot support, but they will be in the minority.”

AIB plans to establish 15 SME business centres in mid-October to provide “specialist support advice on a more timely basis”, O’Callaghan said.

“The board has made it clear to me that we need to do everything to support SMEs. We won’t be found wanting.”

Isme’s Mark Fielding said Nama would change little in relation to the availability of credit for SMEs. “I don’t see it making a big difference,” he said.

But the spokesman for Mr Lenihan disagreed. “It’s a very low interest rate , so they [the banks] are incentivised to get the money out there in the economy and working.”