Banks unlikely to meet €3bn lending target to businesses

THE REPUBLIC’S biggest banks are unlikely to meet a Government target to lend €3 billion each to small- and medium-sized businesses this year, according a report due to be published today.

The Credit Review Office, established to monitor AIB and Bank of Ireland’s lending to small- and medium-sized businesses, is publishing its quarterly report for the March to June period today.

Under the scheme, established in the 2010 budget by former minister for finance, Brian Lenihan, both AIB and Bank of Ireland, in which the State holds significant stakes, must lend €3 billion a year each to small- and medium-sized businesses in the Republic.

The report, by credit reviewer John Trethowan, states that the two banks are unlikely to meet this target, but suggests that the main reason for this is that demand for credit from such businesses is low.

Mr Trethowan pointed out yesterday that while his office was monitoring the supply of credit to businesses, there was a need for a “credible” measurement of demand.

He said that the evidence suggested that while the banks have worked at informing the business community around the country that they are open for business, the demand was not there.

According to Mr Trethowan, outside of farming, which is doing well in the current climate, many businesses are focusing their efforts on repaying loans rather than increasing their borrowing.

“Even where they are getting approval for loans or overdrafts, it’s taking a while for them to be drawn down,” he said. “No one is jumping in too quickly.”

Businesses refused credit can appeal these decisions to Mr Trethowan’s office, once they have exhausted the bank’s own procedures. The office handled 98 such appeals during the period, and overturned the bank’s decision in 30 of them and upheld it in 27 cases. The other appeals are at various stages of the process.

Commenting on the report, Small Firms Association director Patricia Callan argued that a Central Bank policy that forces banks to be “ultra risk averse” was responsible for the slowdown in lending, and not a drying up of demand. “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,” she said.