Cabinet under fire over lending figures

The Government has been accused of accepting “sugar-coated” lending figures from Irish banks after a Central Bank report found a massive rate of rejection for loan applications by small business here.

Ireland’s rejection rate of 24% is double the EU average and second only to Greece, despite demand for credit here being on a par with the rest of the EU.

More worryingly, the report found that problems accessing in credit were mainly caused by banks not lending.

The rejection rate has resulted in small and medium enterprises (SMEs) here having the second highest rate of “discouraged” borrowers — firms that need credit but do not bother to apply for a loan because they fear rejection.

Moreover, Irish firms pay higher loan interest rates, have access to lower loan amounts, and have more stringent collateral requirements than other countries.

Fianna Fáil finance spokesman Michael McGrath says the survey’s findings are a “damning indictment of the Irish banking system”.

“Despite what the banks say, there is a credit famine for viable businesses throughout the country.

“It just proves banks are sugar-coating lending figures they are giving to the Government and the Government is accepting these figures without question.

“Moreover, there will be no economic recovery until the banks started lending to companies again.”

In response to the survey, the Department of Finance said it continued “to meet with the banks on a regular basis to ensure banks are meeting targets and lending into the real economy”.

“All businesses who have a demand for credit should apply to the banks and, if a business is rejected, they should apply to the Credit Review Office, where 60% of cases reviewed are overturned. The Government recognises the key role of the SME sector in the Irish economy and the vital importance of credit to companies. In this regard, lending targets of €3.5bn for both pillar banks have been set for 2012 and 2013 and the banks’ progress towards meeting these targets is monitored by the Credit Review Office on a quarterly basis.”

The survey relates to the period Sept 2011 and Mar 2012. It found that, over the first quarter of this year, the level of gross lending to SMEs was €407m, which was a 29.6% decrease from the last quarter of 2011 and is down from €700m in gross lending in the last quarter of 2010.

Roughly 24% of loan applications were rejected, compared with a eurozone average of 12%. Moreover, nearly 15% of Irish firms did not apply for a loan or overdraft because of fear of rejection, the survey found, which is the second highest level in the eurozone.

The survey concludes that the high level of loan application rejections suggests the problem lies in supply. In other words, the banks are not lending to the levels required, which is more damaging for the economy than weak demand for credit.


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