CREDIT FLOW:GROUPS REPRESENTING small businesses expressed their disappointment last night that Minister for Finance Brian Lenihan did not announce any new measures to accelerate the flow of credit into the economy.
In his speech to the Dáil yesterday, Mr Lenihan said the removal of risky loans from the banks’ balance sheets “should improve credit supply” to businesses and house buyers and get the economy functioning again.
The Minister said the establishment of the National Asset Management Agency (Nama) would have a dual benefit in getting credit flowing once again.
Mr Lenihan said it would give banks an ability to lend while allowing their staff to focus on the core activity of the banks rather than working through problem loans. But no new initiatives were announced by the Minister yesterday.
Mr Lenihan’s speech retraced the steps taken by the Government over the past year to re-establish a flow of credit through the economy.
This includes a commitment from the banks to increase their capacity for small and medium enterprise (SME) lending by 10 per cent; the establishment of a €100 million fund for clean energy; and a €15 million fund for seed and venture capital.
The Department of Enterprise, Trade and Employment has also set up a credit clearing group, which is examining cases of credit refusal referred to it.
The Minister acknowledged that, based on reports supplied by the banks on a quarterly basis to the Financial Regulator, business lending is taking place, but at a slower rate than 2008.
Patricia Callan, director of the Small Firms Association, said credit continues to be constrained to SMEs and they were “disappointed” that Mr Lenihan did not announce new initiatives yesterday. “A Government-backed loan scheme for small businesses, like they have in other countries, is what’s needed,” Ms Callan said. “That shares the risk with the banks.”
Mark Fielding, chief executive of Irish Small and Medium Enterprises Association (Isme), said the Government does “not have a handle” on SME lending. He echoed the call for a Government-backed loan scheme and also urged an extension of the Business Expansion Scheme to allow owners and their families to invest equity in the businesses in a tax- efficient manner.
Mr Fielding said the establishment of a third banking force, comprising a merger of the second-‘tier financial institutions, would also enhance competition.
“We’re going to have to wait to see if the measures they’ve introduced will make any difference to small businesses and that will take time,” Mr Fielding said.
In his speech, Mr Lenihan said SME lending was a major priority for the Government.
“Various actions have been taken to support viable business, to track the real situation and to facilitate access to credit on a proper commercial basis,” he said.
“In terms of specific credit supply measures attaching to Nama, the Government continues to examine options in this regard,” Mr Lenihan said.
Figures provided by the Department of Finance yesterday showed that AIB had reported €1.3 billion in “additional credit sanctions” in the first half of this year, with €859 million drawdown.
Bank of Ireland reported a drawdown of €1.5 billion over the same period.
More than 16,000 new business accounts were opened in the first six months of this year, which was also down on 2008.
AIB said it opened 4,100 business current accounts in the first half of the year, compared with 5,000 in the same period of 2008. This was a decline of 18 per cent.
Bank of Ireland opened 12,073 accounts, a reduction of 21 per cent on last year.
“It is clear that credit drawdown/approvals are substantially down on the same period of last year, but the amounts are still substantial and represent a significant level of activity,” supplementary documentation on Nama states.