SMEs get right to appeal loan refusals

By Geoff Percival

Thursday, December 10, 2009

SMALL and medium-sized enterprises (SMEs) have been granted the right to appeal the refusal of banks to give them loans.

The initiative announced by Finance Minister Brian Lenihan in the budget was described as "constructive and helpful" by the Irish Banking Federation (IBF) who welcomed the new credit review system on business lending, which will come under the NAMA legislation, other commentators were less welcoming.

Aimed at SMEs, sole traders and farm enterprises currently finding it difficult to get loan applications accepted; a regular analysis of appeals and their outcomes – across all banks – will be carried out.

Where it is recommended, that credit should be granted, banks which have initially refused credit will have to comply or provide a written explanation. New loan refusals will also be open to appeals, although those applications will have a fee attached.

"In addition to dealing with individual cases, the credit review system will examine the credit policies and practices of the banks for all SME sectors. It will pay particular attention to sectors, such as the retail sector, including car dealerships, tourism, and agriculture, where particular stresses have been reported.

"This will help me to decide what further action might be necessary to secure the flow of credit. I intend to publish the analysis from the review process so that the performance of the banks participating in NAMA will be clear to all," Mr Lenihan said in his Budget speech.

A new team – headed up by John Trethowan – will oversee the new review system and will report to the Department of Finance with regard to credit availability in different sectors of the economy.

In response, IBF chief executive Pat Farrell said the move supports the "open for business" line the main banks have been promoting, regarding their lending activity.

"Banks remain supportive of the SME sector through these very challenging times; not just in terms of finance but non-financial supports also. This new review process should provide further assurance to SMEs seeking credit for viable business propositions," Mr Farrell said.

However, Mark Fielding, chief executive of ISME, said the move will likely make no difference to credit flow: "It may make banks a little more circumspect, but those refusing to lend will probably have dotted their ‘i’s and crossed their ‘t’s before appeals get to committee stage."

This story appeared in the printed version of the Irish Examiner Thursday, December 10, 2009