Watchdog: Demand for loans falls

THE Credit Review Office has poured cold water on ongoing claims SMEs are still finding it difficult to access bank loans, by saying both demand and refusals are in decline.

The body — established last year to monitor the flow of bank credit to small and medium-sized enterprises — said yesterday it is “incorrect” to suggest the main banks aren’t lending and the idea they’re not is based on conditions 12-18 months ago.

“The banks we are dealing with are lending to viable propositions,” the Review Office’s head, John Trethowan remarked yesterday at the publication of the third quarterly report from the body.

He added demand for working capital and bank lending has naturally abated as business activity has declined — but will pick up as the economic recovery gathers pace — and that, on average, instances of banks refusing written applications for corporate loans are falling by 20% per month.

The office’s latest report — covering the last three months of 2010 — saw 48 formal applications made by SMEs to have their previous loan refusal reviewed; of which 18 bank decisions were upheld, 12 cases were found in favour of the SME, 15 are in various stages of review and three require more work by borrower and bank.

The findings were welcomed by various industry players — amongst them, the banks, unsurprisingly; and the Irish Banking Federation (IBF). Minister for Finance Brian Lenihan said the results showed “encouraging signs that lending to the essential SME sector continues to improve”.

However, ISME — one of the few SME-representative bodies not to support the office — said the low number of completed cases in the last quarter, “confirms companies are ignoring the process”.

Since the turn of the year, the number of SME applications made to the Credit Review Office has increased, according to Mr Trethowan, whereby the office is receiving up to three applications per week, on average.

He also said the two main banks are “in line” to achieve their lending commitments of €3bn each over two years. However, Mr Trethowan said he was against the establishment of a loan guarantee scheme for SMEs saying it could force banks to lend to non-viable enterprises.