No real recovery until vicious cycle of credit cost is broken

THE Central Bank survey which shows loan application rejections are twice the eurozone average throws the spotlight on a crucial area of the economy.

If the SME sector is starved of credit, then the domestic economy will remain stagnant at best, which will ultimately lead to a vicious circle that could undermine the viability of the banking system.

Exports have held up well during the worst downturn in the history of the State. But there has to be a recovery in the domestic economy before unemployment can be brought down to manageable levels. Banks will not be able to return to full health until there is a stabilisation of the economy. This then becomes a chicken and egg scenario. As long at unemployment remains where it is, the housing market is likely to remain in a prolonged slump and there will be concerns over mortgage arrears and other forms of personal debt on the balance sheets of the banks.