Call for new business lending bank

ISME has noted an improvement in the level of bank lending to small businesses but said credit levels are still a long way off normal patterns.

In its latest quarterly Bank Watch Survey, the small firms lobby group said 42% of respondents who have applied for funding within the last three months were turned down by their banks. This number was down from the 55% reported in the preceding quarter.

“The improvement reported in the quarter, while welcome, is still twice the refusal rate experienced in ‘normal’ times and doesn’t go far enough to addressing the credit crisis,” according to ISME chief executive Mark Fielding.

However, the survey also shows the number of firms actually going to their banks to apply for credit is also falling.

And more than 80% of respondents said banks are making it more difficult for SMEs to access finance.

“There has been a reduction in firms approaching their banks and there still remains a swathe of companies that are unable to convince their banks to extend them credit, resulting in postponement of investment, missed business opportunities and company closures,” ISME complained.

Meanwhile, ISME has called for a four-way merger between the EBS, Irish Nationwide, Irish Life & Permanent and what remains of Bank of Scotland (Ireland) to establish a specific bank for business lending purposes.

“This ‘third force bank’, with its critical mass, would provide more effective competition to the two and a half major banks, which are more likely to cherry pick top business clients and dump the marginal ones, during a recession,” claimed Mr Fielding.

Mr Fielding expressed concern at the reduction in bank competition, saying that the Government needs to intervene.

“It’s now time that the Government took matters into its own hands and got directly involved in SME lending, through the creation of a specific business lending bank, similar to the ICC, which would be manned by individuals with the experience of dealing with SMEs and able to meet their requirements,” Mr Fielding said.

Only last week, the head of the Credit Review Office, John Trethowan, told the Joint Oireachtas Committee on Enterprise that the deterioration of competition in the banking network “is a cause for concern for the future”.

He said 30% of business borrowers already face difficulties in accessing new lending.

AIB and Bank of Ireland command a combined 60% of the market, with Ulster Bank controlling another 10%.