Lending survey supports SME claims

Claims by the SME sector that companies are finding it difficult to access credit are borne out by the latest Euro Area Bank Lending Survey which shows that the credit standards adopted by Irish banks for lending to the SME sector tightened in the third quarter of 2009.

The survey, published today, found that credit standards are expected to remain unchanged throughout 2010 despite the establishment of the National Asset Management Agency (Nama).

Five Irish banks participated in the Europe-wide survey which is conducted on a quarterly basis.

According to the Irish banks surveyed, the main factors attributing to the tightening of credit standards were an increase in banks' cost of funds and balance sheet constraints, coupled with increased risk perception.

The tightening of credit standards on loans to businesses was reflected in a variety of ways - higher loan margins, smaller loan sizes, and more restrictive collateral requirements.

In contrast to the tightening credit situation for small and medium sized enterprises, the survey showed that credit standards for lending to households remained unchanged in the third quarter of 2009. This is the first time since the fourth quarter of 2007 that credit standards for household loans have not tightened quarter-on-quarter.

However, the third quarter of last year continued to see a decline in the demand for household loans, as well as a fall in the demand for consumer credit. It is predicted that credit standards adopted by banks in lending to households – and the level of loan demand from the sector - will remain unchanged for the first quarter of 2010.

The survey also found that demand for credit from businesses decreased in the third quarter of 2009. This decline is attributed to a reduction in the financing needs of enterprises, in particular lower levels of fixed investment and declining volumes of mergers and acquisitions (M&A) activity according to the survey.