Banks ‘found wanting’ over lending to challenged SMEs

The pillar banks lack the lending skills necessary for more challenged SMEs looking for credit, according to the head of the Credit Review Office, John Trethowan.

“Most of existing bank lending is to low- and medium-risk SMEs. But there are a number of SMEs that have viable businesses but who don’t have a good track record because of the environment over the past few years,” said Mr Trethowan, who was appearing before the Oireachtas finance committee yesterday.

“They need access to credit, but this is where the banks are found wanting.”

Mr Trethowan noted that the Irish Banking Federation was now offering four-day courses on SME lending to all sectors for younger staff members of the pillar banks, which he described as a positive development.

His office has received 323 review applications since its inception three years ago, with 215 reviews completed to date. The Credit Review Office has recommended that the bank reverse its original decision and grant the loan in 120 cases.

Mr Trethowan said that more than 1,100 jobs have been saved and €13m worth of loans extended because of his office.

Under existing arrangements, a failed loan bid has to be appealed internally in the bank before it goes to the Credit Review Office. In the case of AIB, 36% of rejections were overturned on internal appeal, whereas Bank of Ireland only overturned 6% of rejections on appeal.

Mr Trethowan said there were only three banks active in the SME lending space — the two covered banks and Ulster Bank. “I would be very concerned that three is not enough,” he said.

He requested that Ulster Bank join the credit review scheme, but it declined.

The Credit Review Office was set up by the late Brian Lenihan under the Nama Act.

He blamed the lack of SMEs bringing their cases before the Credit Review Office on two key factors. SMEs are often weary following exhaustive attempts to secure credit in the first place. They are also terrified that they will “fall out” with their bank if they are seen to be asking for a review.

His office ensures that no company is victimised in the event that it asks for a review.

There was a total of €8bn in loans sanctioned by the pillar banks last year, but only €2.5bn was new lending. The rest was restructuring and refinancing.

The cost of running the office is €500,000 per year, but half of this goes towards advertising in an effort to increase the profile of the CRO. There are three full-time staff and a further seven review officers who are paid on an hourly basis to look at cases.