SMEs ‘need debt forgiveness’

Debt forgiveness on some outstanding SME loans will be required to deal with the debt crisis, a Dáil committee was told yesterday.

John Trethowan, head of the Credit Review Office, who last year warned of the negative effects of a blanket debt forgiveness scheme for business borrowers, told the joint Oireachtas jobs committee that “some level of forgiveness will have to be required in order to deal with legacy debts”.

He said this was his personal observation, as such matters do not fall under his office’s remit.

He said banks have an “over-rigorous” approach to requesting information regarding loan applications. However, the committee heard it was a “myth” that the banks were not lending to or helping SMEs.

Irish Banking Federation chief Pat Farrell said he believed the SME lending situation was improving and it was “a myth” that banks are not issuing loans, and also untrue that any loan refusal acts as a block to further lending to that applicant.

He said banks were helping to keep small firms in existence by renegotiating existing lending facilities.

“It’s not all about new lending,” said Mr Farrell. “Renegotiating existing credit facilities and working capital levels are just as important and every bit as valuable as new lending, and the banks are working to meet that need.

“It’s critically important that there’s a positive demand for credit availability. If we continue to say the banks aren’t open for business, it becomes a self-fulfilling prophecy.”

Fianna Fáil TD Dara Calleary said that while Mr Farrell’s statements sounded great in theory, they were “in variance to what we’re dealing with”, noting Ireland’s ranking as second highest country in the EU in terms of “discouraged borrowers” and previous CRO suggestions that SMEs feel isolated and removed from the banks.

Mr Farrell replied that his presentation — which also included data showing that 60% of successful loan applications were being approved within 15 working days and that 80,000 SME loan approvals have been made since the start of the year — was based in fact and that well-run and capitalised businesses will still get loans.

However, he urged SMEs to make formal applications to banks, saying it is vital “if we want to get a handle on approval levels”.

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