Bank and firms differ in defining a loan refusal (Irish Independent)

04 November 2011
A key Government-commissioned report into bank lending to small businesses has found a massive difference between what banks and firms call a loan refusal.

Bank data for Allied Irish Banks, Bank of Ireland, Anglo Irish Bank, Ulster Bank and National Irish Bank indicate they are turning down an average of 14pc of credit applications from small to medium-sized enterprises (SMEs), according to consultants Mazars.

But SMEs are reporting an average refusal rate of 24pc, rising to 30pc for businesses with less than 10 employees.

Finance Minister Brian Lenihan revealed highlights of the report in reply to a parliamentary question yesterday, ahead of full publication later this week.

"The difference primarily results from a difference in perception on what constitutes an application for credit," he said. "Banks do not record informal queries or requests but a customer whose informal request is rejected counts that as a refusal."

The report found that demand for credit remains high, with 52pc of those surveyed saying they had looked for a loan over the past year.

Surveys showed "reduced revenues and employee numbers", according to the minister.

Total lending to the SME sector by the participating banks -- excluding the speculative property and construction sectors -- remained static at €34.5bn. But the value of new applications for credit fell by 42pc -- consistent with recent Central Bank figures.

AIB and BoI have agreed to increase their lending capacity to SMEs by 10pc this year after the €3.5bn recapitalisation of each bank by the State.

But business bodies insist banks are still not lending to SMEs. And small firms body ISME claims 70,000 jobs are at risk in the sector.

Yesterday, Kevin Cardiff, a senior official the Department of Finance, told the oireachtas committee on regulatory affairs that there appeared to be no major discrepancy between what the banks say they're lending to SMEs and what is actually being received by businesses.

Fine Gael Senator Paul Coughlan claimed there was substantial anecdotal evidence to suggest the two main banks were not lending.

Mr Cardiff said there was no evidence to suggest AIB and BoI were not making credit available to SME borrowers.

The department's assistant secretary, William Beausang, said the Irish Banking Federation is examining how best to ensure that the Irish Credit Bureau is supporting the banks in making "prudent, responsible lending decisions".