Government urged to consider underwriting credit for SMEs

THE GOVERNMENT should consider underwriting credit for the SME sector the head of the Credit Review Office has said.

Speaking at the publication of the fourth quarterly report of the Credit Review Office, John Trethowan said that, while this would involve a contingent risk for the taxpayers, some form of Government initiative was needed to help viable businesses in cases where lending would be outside the prudential lending policies of the banks.

Mr Trethowan also called for the scheme’s current €250,000 threshold to be lifted to at least €500,000, and for non-Nama banks to be encouraged to join.

The Credit Review Office was set up by the last government to address concerns by the business community that banks were not lending. Businesses that have had their application for credit refused or reduced and feel that the bank’s decision is unjustified can apply to the office once the borrower has already gone through the bank’s own internal loan appeals process.

The latest report shows that the office has reviewed 76 applications since it was established just over a year ago. In 22 cases, the bank’s decision was upheld, while in 23 cases its decision was disputed and the bank subsequently provided credit. The remaining applications are still at different stages of the review process.

The Credit Review Office has received 823 calls to date.

The office, which also examined AIB and Bank of Ireland’s lending targets, found that the two main banks have lent €8 billion to SMEs in the last year, €2 billion more than Government targets, though this includes restructuring as well as new lending.

Responding to the survey’s findings Isme, the association which represents small and medium-sized businesses called for the Government to review the performance of the Credit Review Office.

“The Credit Review Office, introduced as an appeal mechanism, is not working, as evidenced by the paltry number of cases, six applications a month referred, during a time when small business is struggling,” the organisation said.

It also questioned whether a system “which is not totally independent of the banks” can be effective, and called for the inclusion of “non-bank business people”.

However, Mr Trethowan said yesterday his office had assembled a separate panel of non-bankers to separately overview any appeals upheld in the banks’ favour, in response to criticism that its credit reviewers were former bankers.

The fourth Credit Review Report found the loan approval rate for the banks involved stands at around 88 per cent. This compares to Isme’s latest quarterly bank watch survey which found that banks refused 48 per cent of its members credit applications.

Separately, figures released by the Central Statistics Office yesterday showed that 50 per cent of all loan applications by Irish enterprises were successful in 2010, compared to 90 per cent in 2007.

The study, which is part of a Eurostat, EU-wide survey into the availability of finance, interviewed 3,000 small to medium-sized companies about their experience accessing credit from banks.

The survey found that the number of enterprises seeking loan finance fell over the period, with 37 per cent of all enterprises seeking loans in 2007, compared with 31 per cent last year.