Reviewer says SME loans not restricted

THE CREDIT Review Office has found no evidence that AIB and Bank of Ireland are constraining the supply of credit to any sector of the SME market.

In his first quarterly report to the Minister for Finance, credit reviewer John Trethowan said Bank of Ireland and AIB – the two banks under his remit – are lending to viable businesses.

However, his report raised concerns about some practices in the banks, including a lack of experience among some front-line bank staff in dealing with SMEs, as well as anecdotal reports of banks requesting that borrowers hold on deposit the same amount of money that they have requested for overdraft facilities.

The report also found that while AIB and Bank of Ireland were meeting their lending requirements to SMEs, there has been a contraction in the number of other lenders making loans into the business market. This was due mainly to the de facto removal of Anglo Irish Bank and Irish Nationwide from the lending side, as well as anecdotal evidence of lacklustre lending by some banks outside the Nama process.

AIB and Bank of Ireland currently provide 60 per cent of the market supply.

Mr Trethowan expressed concern that customers of other banks were facing significant difficulties in obtaining working capital, an issue that would become increasingly problematic as the economic situation improved and the demand for credit increased.

The Credit Review Office, a non-statutory body, was established by the Government in early April in response to concerns that viable businesses were being denied credit by banks.

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 office reviews loan applications made by SMEs, farm owners and sole traders up to the value of €250,000.

Yesterday it emerged that the Credit Review Office has completed only six reviews since it was set up, with another five applications going through the process. Of the six cases reviewed, the decision of the bank was upheld in three cases, while the office sided with the borrower in two cases. In the sixth case, Mr Trethowan recommended that further work was required by both the borrower and the bank.

Mr Trethowan has also worked with the banks to formalise their internal appeals procedures. Of 49 internal appeals completed between the two banks, 10 resulted in the refusal being overturned or sanctioned with conditions.

While Mr Trethowan said the slow take-up had been disappointing, he was particularly pleased with the changes in the banks’ internal appeal mechanisms.

Minister for Finance Brian Lenihan confirmed yesterday that the Credit Review Office, together with the monthly monitoring of the lending practices of AIB and Bank of Ireland, would supersede the three Mazars reports into bank lending as the main means by which the Government would monitor the issue of credit to small businesses.

While the report found that AIB and Bank of Ireland were lending to businesses, Mr Trethowan found that many borrowers were facing a series of obstacles in their attempts to secure credit.

These include serial requests for information from the banks, thereby delaying the submission of the application, and a refusal to respond to borrowers’ queries on the progress of their application.

Mr Trethowan also found that many business owners used their profits to invest in rental properties during the boom. These properties are now subject to mortgages, with the result that the businesses now lack the cash reserves that would have assisted their survival.