‘No evidence’ standards dropped on lending to SMEs

THE Central Bank said yesterday it had found no evidence to suggest the main banks had dropped lending standards to meet the targets for lending set by the Government.

Its review examined the SME strategic lending plans of the banks operating in the Republic of Ireland.

It included six banks with the principal focus on AIB, Bank of Ireland and Ulster Bank as the largest and most active lenders to the sector.

The bank also held talks with KBC Bank Ireland, ACC Bank and Danske Bank which trades as National Irish Bank.

Jonathan McMahon, director, financial institutions supervision said in a statement with the Review findings: “We anticipate that banks will, over time, grow lending in that sector as a proportion of their overall loan portfolios.”

He described the sector as large and diverse offering revenue streams beyond interest income, including deposit revenue and transaction and advisory fees, he said.

Mr McMahon said it was encouraging that the banks had not slackened their lending criteria in the current environment. But the bank will continue to monitor credit risk management in this area closely, he said.

He added that the banks’ strategic planning process in this area would be improved if bank boards became more actively engaged and challenging at an earlier stage and at a more detailed level. The review sought to assess a number of key areas apart from the risk factor.

It also looked at the overall quality of the banks’ SME strategy and plans, and the quality of the risk management for this category of lending.

It also looked at whether banks were developing the necessary skills to originate sound loan portfolios.

Responding, the Irish Banking Federation said it was encouraged by the Central Bank’s findings “of significant improvements in the policies and practices employed by banks in support of their SME customers”.

It welcomed in particular the fact that banks are focusing on improving their customer engagement and that they “have made progress in developing quality SME plans”, it said.