Mr Trethowan also noted that the current findings are not unique to Ireland and are “broadly mirrored in similar conditions in Britain.”
The CRO was established in 2009 by the then Minister for Finance to conduct a review process of refused loans from banks involved with NAMA. It accepts applications from small and medium-sized enterprises (SMEs), sole traders, and small and medium-sized farm enterprises that have had their application for credit refused or reduced or have had credit facilities withdrawn, and feel that the bank’s decision is unjustified.
The CRO will, on request from the borrower, carry out an “independent and impartial review of the bank’s decision” with respect to credit facilities ranging from 1,000 euro up to 500,000 euro. Each review will only apply to a specific declined credit application, and not to any other borrowings which may exist. Therefore, applicants who may have total borrowings above this limit are not excluded from the review process.
At present, the participating banks (NAMA banks) include Allied Irish Banks, Bank of Ireland, Anglo Irish Bank, EBS Limited, and Irish Nationwide Building Society.
As stated in the report, Mr Trethowan said that there is general agreement in Ireland that the saving rate for businesses and individuals is too high for an economic recovery to occur, and that there is “little recognition that a symptom of this is subdued demand for new lending.”
“My interaction with the two banks (AIB and BOI) on their 3 billion euro lending targets also provides feedback on a sluggish demand for credit and the slow drawdown of sanctioned facilities.”
The CRO report also stated that “businesses which became accustomed to the easy credit era and are presenting elemental or, worse still, casual proposals are being refused.
“There appears to be a disparity on the level of information input banks now expect from their borrowers to the recognition of what is required and the ability to provide such information from some SMEs and farms. It appears that the banking train has left the station on the requirements for credit applications, and has left some of its SME/farm borrowing passengers on the platform, wondering what happened.”
The report also recommended that business organisations and accountancy bodies should be working to up-skill the SME population on their business planning and financial skills.
“This is critical to the survival of all individual SMEs/farms, but also collectively in strengthening the business stock of the nation for the future. Individuals and business organisations pointing to the behaviour of banks as the sole source of the problems facing some SMEs and farms are in denial of the scope of the problems facing our economy. Without a clear and honest identification of the problems, finding remedies and solutions will not take place.”
Irish Banking Federation Backs CRO’s Findings
Representing over 80 member institutions and associates, the Irish Banking Federation (IBF), the leading representative body for the banking and financial services sector in Ireland, said in a statement that it supported the CRO’s findings.
The statement said that SMEs which “present a sound business proposition supported by proper financial information and credible projections are successful in their credit applications.”
Commenting on the CRO’s findings with respect to SMEs need to improve their business planning and financial skills, the IBF said that this requires a response “across the wider business community and business organisations, relevant State agencies and the banking sector.”
The IBF stated that the banking sector is committed to working with other stakeholders in “providing the financial and non-financial supports that the small business sector needs to help drive our economic recovery.”
The IBF also stated that its member banks are “currently collaborating with Chambers Ireland in the development of a new designated website which will provide a one-stop source for small businesses that will provide access to all the information they need to finance their business.”
Business Bodies are Less Pleased With CRO’s Findings
The Irish Small & Medium Enterprises Association (ISME) has described the CRO’s findings with respect to the reasoning behind AIB and Bank of Ireland’s failure to meet their credit commitments over the next 12 months as “arrant nonsense.”
ISME Chief Executive, Mark Fielding said: “We in the SME sector are sick and tired of the excuses constantly being issued by the CRO, rapidly becoming the main mouth-piece of the banks, justifying the refusal of the banks to provide adequate lending facilities to their SME customers. The reality is, and has been for a considerable period, that the banks are refusing lending facilities to the majority of SMEs and in turn are failing to meet the lending targets set down by Government.
“It is an absolute disgrace and highly irresponsible of the banks to claim, and the CRO to support, the view that SMEs are not demanding credit. This is completely contrary to the views regularly being expressed to ISME from member companies,” said Mr Fielding, who continued by saying that access to credit or the lack thereof “remains one of the most significant barriers for business, and the lack of credit is directly responsible for hundreds of company closures and thousands of job losses.
“The CRO would, in our view, be better off assisting the process and increasing the number of companies that use their services, up from the paltry 4 cases per month recorded to date,” said Mr Fielding.
Small Firms Association Echoes ISME Concerns
Ms Patricia Callan, Director of the Small Firms Association (SFA), was just as critical of the CRO’s report, and expressed concern that the pillar banks may not now meet their 3 billion euro additional lending requirements for 2011.
“It is unacceptable at a time when access to finance remains the single biggest issue for the small business community that the banks claim that the reason they can’t lend is because there is no demand,” said Ms Callan.
“The banks must improve their efforts to communicate with customers that they are open for business and this must be evidenced in having experienced staff in all branches that are able to make coherent business banking decisions, based on an assessment of the business-person and their business plan rather than security and personal guarantees.”
According to Ms Callan, the SFA believes that the “prudential lending policies being set down by the Central Bank are in practice diametrically opposed to Government commitments to restore lending to SMEs and to allow the 3 billion euro targets to be met by the pillar banks.
“A broad-based government-backed loan guarantee scheme, as operates successfully in many other developed countries, needs to be introduced as a matter of urgency. The scheme announced as part of the jobs initiative is too restrictive and will not go very far in protecting or creating jobs,” said Ms Callan.
