Banks 'not withholding SME credit'

The first report from the Credit Review Office has found no evidence that AIB and Bank of Ireland are constraining the supply of credit to the small and medium enterprise (SME) market.

In his first quarterly report to the Minister for Finance, Credit Reviewer, John Trethowan said there was no evidence the two main banks were engaging in lending policies which inhibited the supply of credit to viable businesses.

However, his report raised concerns about some practices in the banks, including a lack of experience among some front line bank staff in dealing with SMEs as well as anecdotal reports of banks requesting that borrowers hold the amount of money requested for overdraft facilities on deposit with the bank.

While AIB and Bank of Ireland were found to be meeting their lending requirements on the whole, Mr Trethowan said there has been a contraction in the number of other lenders making loans into the business market.

This was mainly due to the de facto removal of Anglo Irish and Irish Nationwide from the lending side, as well as anecdotal evidence of lack-lustre lending performance in some of the non Nama banks.

AIB and Bank of Ireland currently provide 60 per cent of the market supply. Mr Trethowan said that customers of other banks may face real difficulties in obtaining new loans, an issue that will become increasingly problematic as the economy picks up and the demand for credit increases.

The Credit Review Office was established by the Government in early April in response to concerns that viable businesses were being denied credit by banks.

The office reviews loan applications made by SMEs, farm owners and sole traders up to the value of €250,000.

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 Credit Review Office has completed six reviews so far, with another five applications proceeding through the process. Mr Trethowan said he was disappointed with the take-up to date, although the Minister was satisfied with the positive impact of the Credit Review Office.

In addition Mr Trethowan worked with the banks in order to formalise their internal appeals procedures. Of a total of 49 internal appeals completed between the two banks, 10 resulted in the refusal being overturned or sanctioned with conditions.

Also today the Minister for Finance Brian Lenihan published SME lending plans submitted to Mr Trethowan by AIB and Bank of Ireland outlining how they plan to disseminate the total of €12 billion they are required to lend to to the sector in 2010 and 2011 under the terms of the bank recapitalisation plan.

These plans will be reviewed by Mr Trethowan on a monthly basis.