Big banks deny cut in lending (Irish Times)

04 November 2011
THE STATE'S two largest banks denied claims they were starving small businesses of credit, but said they were being more careful on lending due to the recession and the reduced creditworthiness of borrowers.

Donal Forde and Richie Boucher, the respective heads of the Republic of Ireland businesses of Allied Irish Banks and Bank of Ireland, were subjected to intense questioning by TDs and Senators at a hearing of the Oireachtas Committee on Finance and the Public Service on the difficulties facing businesses in securing new loans and increasing their overdrafts to tide them over the recession.

Mr Forde said AIB had neither reduced its lending to small firms or changed its lending rules, although the changing economic environment meant that some companies were not qualifying for new loans or higher overdrafts under its existing credit rules.

He said the bank had increased the size of its loans to small and medium-sized businesses by 6 per cent to €9.5 billion this year on the same period last year, while overdrafts were up 11 per cent to €3 billion on the same period last year.

"There is no instruction to our branch managers anywhere in the country to cut back on anything."

Mr Forde said he expected that the European Investment Bank (EIB) would only provide about €300 million in loans for Irish business when it made a decision how much it would earmark for Ireland later this week or early next week.

Mr Boucher said the EIB fund should not be regarded as a cure-all to improve lending to businesses.

Bank of Ireland said it had a 80 per cent approval rate for loans to small firms, and that it wanted to grow its stake in the sector.

JJ Killian, chairman of small business representative group ISME, told the committee that small businesses were having difficulties accessing credit, which in turn was "hampering their ability to do business in difficult times".

He referred to a profitable Cork firm in business for 30 years that was refused a €100,000 loan for stock despite offering land worth four times the loan as collateral.

Irish Hotels Federation chief executive John Power called for urgent action to help hotels survive and claimed that a shortage of credit was "hampering business".

The Small Firms Associations (SFA) said 700 jobs were being lost a week from firms closing down because credit had dried up.

"We need an economy and not just a financial sector after the current process reaches a conclusion," said director Patricia Callan.