THE COUNTRY’S two main banks, Bank of Ireland and AIB, may both struggle to hit the €3.5 billion small and medium-sized enterprise (SME) lending target set by Government, according to the head of the Credit Review Office, John Trethowan.

Sanctions for SME loans for the first three months of the year were broadly similar to the figures for the first quarter of 2011, when the banks each had to sanction €3 billion for the year, so it “may be a bit of a stretch” to reach this year’s targets of €3.5 billion, he said.

“They may not meet them, but it is too early in the year to say that they won’t,” he said.

Lending transactions by the banks were down 15 per cent in the first quarter on last year.

Mr Trethowan was disappointed there was not more evidence of “enterprise risk-taking” by the banks.

They could take on more risk with “the more difficult cases”, he said, and needed to ask whether they were going to get money back on a certain case and, if they were, then they needed to approve the loan.

“I am not asking banks to chuck their policies out the window, but certainly to be more flexible,” he said.

“There needs to be some level of discretion around that to let bankers who can see a viable deal – which may be outside policy – to let them to make the loans.”

Banks drove “a coach and horses” through their lending policies during the boom to the point where there were so many exceptions that there were no policies.

“I am not suggesting that we get back to that madness, but there is room for banks to be making policy exceptions for viable businesses,” Mr Trethowan said.

The Credit Review Office, which hears appeals from SMEs which have been refused credit, overturned 69 credit refusals out of 197 appeals, leading to €6.9 million of credit being made available to SMEs and 683 jobs being supported. The office has upheld the banks’ decision in 48 cases.

The office said it overturned 17 bank refusals in the last quarter, which led to Bank of Ireland and AIB providing €2 million of credit, supporting 140 jobs in SMEs.

Only Bank of Ireland, AIB and Ulster Bank were lending to SMEs. Other banks were “not actively” making new loans to SMEs, which would be “an issue”.

A new entrant in Irish banking providing loans to SMEs would be a welcome development, he said.

Customers at the former Bank of Scotland (Ireland) and Anglo Irish Bank will have an issue with rebanking with other lenders and dealing with the costs of transferring securities to other banks as the economy recovers, he said.

He expressed concern that the banks may lose staff with skills, experience and relationships with SME customers under their plans to make staff redundant.

AIB’s head of business banking John Webb said the bank was committed to reaching the 2012 target of €3.5 billion in new SME loans.

“We have taken action to free up front-line staff so they can engage more with our customers. We know we have more to do in this area,” he said.

Fianna Fáil finance spokesman Michael McGrath TD said Mr Trethowan’s comments that the banks could be taking on more risk was “further evidence of the inadequate performance by the banks”.

“The reality on the ground is that viable businesses are still struggling to get access to credit with reasonable terms and conditions, and this credit squeeze is continuing to choke the economic recovery,” he said.