The demand for bank credit by SMEs remains low, although there was an improvement in perception that banks are lending, according to the latest SME Credit Demand Survey prepared for the Department of Finance.
The survey covers the period from last October to March.
Of the SMEs who had applied for credit at the date of the survey, there was a 60% approval rate. Excluding applications that were still pending, there was an approval rate of 76%. However, the survey found that the conditions attached to loans were becoming more punitive, including more personal guarantees.
Only 40% of SMEs requested at least one type of bank finance over that six-month period, a 1% increase on the last survey in September and a 2% increase on year ago levels.
The overall increase in demand for SME credit is driven by micro-sized companies, “while demand remains relatively steady among small and medium sized companies,” said the report.
The rejection rate for loan applications was 19%, which is the same rate as the last survey, although down from the 23% a rate recorded a year ago. The decline rate for State controlled banks is 18% compared with 24% for non-pillar banks.
In the past, a big barrier to SMEs submitting credit applications was the belief among firms that banks were not lending.
According to this survey, 47% believe that banks are lending, up from 39% in the last survey. However, those who believe that banks are lending, think they are lending to only a small number of SMEs. Roughly 6% do not apply for credit because they believe banks are not lending.
It takes roughly 21 days to get a decision on a loan application, which is almost a week more than the 15 days recommended in the code of conduct and guidelines for lending.
Just over three quarters of SMEs said they did not agree with the reason provided by the bank about why their application was declined and a further 21% claimed that they did not get any reason whatsoever.
Last July the Central Bank released a report which showed that Irish SMEs faced some of the toughest credit conditions in the eurozone. Moreover, it found that the lack of credit stemmed from a reluctance by the banks to lend. The banks rejected the findings and blamed low lending rates on the lack of demand.
A Standard & Poor’s report released yesterday found that roughly $4 trillion of corporate debt is expected to mature across Europe by the end of 2017.
Credit conditions remain very constrained across the EU as banks continue to deleverage. According to new regulations, banks must increase their capital levels by 2019, which will put further pressure on lending rates.
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