SME lending continues decline

The level of lending to SMEs fell again between the third and fourth quarters of last year, a new report said today.

The latest report by Mazars said total lending to SMEs decreased by 1.2 per cent on a quarter to quarter basis, bringing to €32.3 billion the total credit outstanding to the sector in the fourth quarter of 2009. The report found that one in five SME credit applications are not being approved, although 29,000 applications for credit with a value of some €1.6 billion were approved in the quarter.

According to the report, 84 per cent of credit applications received were approved in the fourth quarter of 2009 – up from 82 per cent the previous quarter.

In terms of credit applications from SMEs, the report found a slight increase in the number of applications from SMEs between the third and fourth quarter of 2009, although overall the number of applications was 36 per cent lower compared to the same period last year.

Today's report is the third such report into lending to the SME sector conducted by consultancy, Mazars. The report was conducted in co-operation with the Irish Banking Federation. Five banks – Bank of Ireland, AIB, Ulster Bank, Anglo Irish Bank and National Irish Bank - took part in the survey.

The research examined four categories of lending products offered to SMEs – loans, overdrafts, finance and leasing, and invoice discounting. Approximately 80 per cent of all lending to SMEs is in the form of loans, which declined by 0.5 per cent on a quarter-on-quarter basis.

Director of the Small Firms Association Patricia Callan said that the report shows that access to credit continues to be problematic with 16 per cent of formal credit applications to the 5 participating banks surveyed declined. "This figure does not include the number of informal enquiries that are stopped at branch level and never make it to the formal application stage" she said.

She also pointed out the cost of credit continues to be an issue for businesses.

Isme's Mark Fielding questioned the role played by the IBF in the report. He described the report as "misleading and dangerous, with the fingerprints of its sponsor the IBF all over it." He said the findings are based on information supplied by the banks, with no input from the SME sector.

Pointing out that the authors of the report state that they were unable to secure any meaningful analysis of credit enquiries, he said the report is based on "unsubstantiated and incomplete data, which completely distorts the true lending situation."

"The report's conclusions are dangerous in the extreme, giving the impression that the banks are open for business, which is clearly not the experience of business owner managers on the ground" he added.

Dera McLoughlin, partner at Mazars and author of the report rejected Mark Fielding's comments. "Mazars is an international accounting firm with an excellent reputation for independence and integrity. This report is an independent report which has its genesis in the bank recapitalization programme."

She said that the data for this report is provided by the five banks in accordance with a model developed by Mazars.

“We independently analyse, stress test and assess this data and require the banks to restate their figures if we do not feel the data presented is a fair and accurate picture as we did in the case of approvals. The IBF’s only role was in co-ordination the process of data provision to Mazars. We firmly stands over the integrity of this report and its findings,” she said.