Lending by pillar banks rises

Patricia Callan

The level of lending from the country’s two pillar banks are at their highest levels since 2010 despite the ongoing difficulties of a number of SMEs in obtaining credit.

The latest Credit Review Office (CRO) report indicates that adverse domestic trading conditions bottomed out in 2013 with firms now reporting improved turnover and profitability, albeit on weakened balance sheets.

The report, compiled by credit reviewer John Trethowan, warns, however, that while profit projections are improving forsome firms, it will take years for many to recover their past liquidity or solvency strength.

Mr Trethowan’s report also highlights the ongoing difficulty of a number of SMEs in accessing credit from the banks, but says Bank of Ireland and AIB continue to be generally supportive of business.

“There continues to be a challenge in obtaining finance for those SMEs which have been distressed but are now recovering, and are viable or potentially viable particularly those with property debt overhangs.

“As with any other business, these more challenged SMEs now require working capital to grow their turnover and, following years when capital replacement was deferred, some SMEs now also require term lending/ asset finance for the continuation and growth of their business,” Mr Trethowan said.

The report finds 2014 is showing record levels of sanctioning activity which is being driven by three main factors:

  • the economic recovery, with strong demand from the dairy sector in farming in advance of the abolition of milk quotas in 2015;
  • companies refinancing or exiting bank debt;
  • the remaining long-term debt restructuring of distressed SMEs.

The levels of ‘new money’ being lent by each of the two banks are also at the highest levels since monitoring by the CRO began in 2010.

Banks, however, continue to report subdued demand due to a lack of confidence to invest at the current stage of the business cycle.

Mr Trethowan also welcomed the establishment of the Strategic Banking Corporation of Ireland which will act as a lender to SMEs.

Small Firms Association director Patricia Callan said the report highlights the need for banks to support businesses with their credit needs.


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