Lending to SME sector to be up this year

New lending approvals and draw downs by small and medium-sized businesses are likely to be marginally up in 2013 as compared with the previous year, according to senior executives with AIB and Bank of Ireland.

However both Gerry Prizeman, head of small business and agriculture at the Bank of Ireland and John Irwin, head of strategy and enablement with AIB's business banking section, said the key issue for lending to SMEs is demand for loans rather than availability of credit.

They were speaking at the launch of a new monitor of SME market activity, the DKM/IBF SME Market Monitor, which looks at 15 published indicators for the sector in order to assess future prospects.

Launching the report, Annette Hughes, director of DKM economic consultants, said domestic demand was key for the SME sector but was still very fragile.

Evidence of an increase in domestic demand - which comprises consumer, investment and government spending - would drive demand for credit but “we are not seeing that yet”.

While a number of recent trends have been encouraging, including reducing unemployment and improved consumer and purchasing managers’ sentiment, strong positive growth in domestic demand is not expected in the short term.

Mr Prizeman said that while the reduced number of banks operating in the Irish market would not help the flow of credit, the departing banks may have already been "emotionally gone" from the market and SMEs who were moving their business to Bank of Ireland or AIB might encounter an improved attitude when they begin to deal with banks that are committed to the Irish market.

He said his bank sanctioned loans of €3.6 billion last year, of which only €1.8 billion was drawn down.

Mr Irwin said that, overall, the amount of money out on loan to SMEs continues to decrease, which is bank for banks. Demand was the issue, he said.

He also said that it was sometimes the case that a viable core business was serving property debts. Such situations could be very complex but it was a situation that had to be resolved for the overall benefit of the economy. Some SMEs that say they are being denied credit even though they have viable businesses, are in such situations.