BUSINESSES ARE finding it harder to get loans from banks, while demand for credit is also continuing to decline, according to the latest survey on lending from the Central Bank.
It also reveals that consumers are finding it more difficult to get mortgages as banks continue to tighten their lending standards.
For the first time since the first quarter of 2010, the survey has noted that it has become more difficult to access credit, with credit standards tightening on loans to both small and larger businesses.
Banks responding to the survey pointed to lower levels of economic activity, less favourable industry or firm-specific outlooks and increased collateral risk as reasons for the tightening of standards.
In addition, an increase in banks’ cost of funds and balance sheet constraints was also reported in respect of lending to large enterprises.
On the other hand, banks noted that demand for credit remains in decline due to a reduction in the financing needs of enterprises. The one area in which an increase in demand was noted was debt restructuring.
Regarding mortgages, the survey revealed that the lending market also continues to get more difficult, with banks reporting more restrictive loan-to-value ratios and reduced loan maturities.
As with business lending, demand for mortgages also continues to decline.
Rachel Doyle, chief operation officer of brokers’ group PIBA, said that the survey shows how “dysfunctional” lending has become.
She noted that PIBA’s latest survey, for Q4 of 2011, shows that almost 40 per cent of brokers reported an application rejection rate as high as 80 per cent.
Looking ahead, the Central Bank noted that it didn’t expect any changes in credit standards, with demand for credit expected to decrease further in the second quarter of the year.
The survey covers five financial institutions in Ireland and is part of a euro-area survey that covers more than 100 banks.
Based on the wider European figures, Ireland lags the general trend, which points to looser credit policies due to more relaxed funding markets.
