Credit group says lending by AIB and BoI to small businesses improving

THE HEAD of the Credit Review Office, set up to examine refusals by banks to lend to small businesses, has said that lending by the two main banks “is improving”.

In the second quarterly report from his office, John Trethowan says “the mantra that the banks aren’t lending was probably correct six months ago but things have moved on”.

Mr Trethowan said of the 19 refused loan applications analysed by his office since its inception in April, credit should have been given in five cases. His office upheld the banks’ decision to decline funding in 12 cases and in the remaining two cases, it was found that both the bank and the borrowers needed to provide more information.

In its first report, published in July, the Credit Review Office had completed six reviews since opening. This report deals with cases to the end of September.

Mr Trethowan said that while his role was to ensure that the two banks covered under the Government’s recapitalisation plan, AIB and Bank of Ireland, achieve the target of €3 billion in new lending each year over the next two years, the issue, which had been with credit supply, was now with demand.

Overall, loan applications were said to be down by up to 60 per cent, with the banks “reporting a lack of demand at this time”.

Minister for Finance Brian Lenihan welcomed the finding that “there is no evidence of the banks indiscriminately refusing credit”.

Asked about the possible impact of events this week on lending to small and medium enterprises (SMEs), Minister for Enterprise and Trade Batt O’Keeffe said: “There is nothing happening in the bigger picture that will impact the front end. Funding to SMEs will not be jeopardised.

“The recapitalisation strategy is achieving its objective of a functioning banking system.”

Figures in the report also show that the two banks processed 114 internal reviews of their decisions on loan applications, with Bank of Ireland upholding 60 of its refusals and overturning five, while AIB upheld 26 and overturned 15.

Isme chief executive Mark Fielding said: “There is absolutely no doubt that the low level of uptake by SMEs of the services of the CRO is due to companies being fearful of using the process and it is viewed as yet another layer of bureaucracy.” While awareness of the appeals process had increased, a recent Isme survey showed that “58 per cent of companies still did not know that the service exists”.