ISME bemoans continuing decline in bank lending to SMEs

ISME, the Irish Small & Medium Enterprises Association, has expressed disappointment at the continued decline in lending to SMEs.

The latest results of its Quarterly Bank Watch Survey show that the 53 per cent refusal rate is four points worse than the figure in September, while  the demand for bank credit remains steady at 39 per cent.

However one of the worrying aspects is the cynical delaying tactics of the banks on SME lending decisions, despite the Code of Conduct for SME lending, it states.

The Association has demanded that the Government, through the Central Bank, now investigate the inordinate delays in getting a decision, averaging eight full weeks instead of 15 days as set out in the Code.

918 owner managers of SMEs responded to the survey, conducted in the week ending 7th December, a response rate of 15.3 per cent, providing a strong indication of the real SME lending environment. The headline statistics:

•    53 per cent of companies applying for funding in the last three months were refused credit by their banks, a deterioration on the 49 per cent from the previous quarter

•    39 per cent of respondents had requested additional or new bank facilities in the last three months showing an increase from the previous quarter’s 38 per cent

•    28 per cent of initial bank decisions were made within one week; the average wait was four weeks

•    It took another four weeks on average to get permission to draw down, while 24 per cent had a decision within one week

•    Less than 10 per cent of respondents who required bank finance did not apply for various reasons

•    Of those, 36 per cent were actually discouraged by the bank from making application, 18 per cent were afraid of a reduction in existing facilities and nine per cent were afraid of refusal

•    86 per cent of respondents are customers for over five years with 45 per cent being customers for over 20 years

•    Of the 47 per cent approved for funding, two-thirds have drawn down the finance either fully or in part

•    53 per cent of requests were for overdrafts, with 48 per cent for term loans or alterations to existing facilities while invoice discounting/factoring accounted for four per cent of requests. Fourteen per cent requested leasing

•    46 per cent of respondents had increases in bank charges imposed

•    Reductions in overdrafts were demanded of 23 per cent of SMEs, down from 38 per cent in the previous quarter

•    Of 91 per cent of small businesses, 54 per cent of respondents were micro-businesses while 8.5 per cent were medium enterprises

•    94 per cent state that the Government was having either a negative or no impact on SME lending, down from 96 per cent, reported in the previous quarter.

Commenting on the results ISME’s Chief Executive Mark Fielding said, “It is disappointing in the extreme that, after all of the bailing out and cossetting of banks and bankers, the main rescued banks are not stepping up to the plate. The Government, in this week’s Budget, acknowledged the importance of the Small and Medium Enterprise sector and introduced measures to assist. The Government must now demand that the bailed-out banks meet their own commitment to SME lending.

“The delays by cynical bankers has coined a new phrase ‘constructive refusal’ as they treat the customer with disdain and hoodwink the Government with continuing distorted statistics.

“There’s no doubt that banks are not lending to the level appropriate to an economy ‘on the mend’. The statistics from our own Central Bank, the ECB and numerous economists, demonstrate the dearth of appropriate credit. We must put an end to the fiction that bailed-out Irish banks are functioning properly. Despite assertions from the banking PR machine, access to credit is abysmal, the application process is getting more torturous and businesses are not being told their rights under the Code.”

“While it’s true that the ATM machines are still open, however, as for assisting the SME sector to grow, as for playing their part in the economic recovery, the banks are simply ‘going through the motions’. Credit lines are being restricted, decisions delayed, deadlines missed and generally any bit of progress hindered, while the bankers themselves are slow to reform, re-educate or restructure.”

Recent figures demonstrate that both rescued banks are going well beyond the PLAR (Prudential Liquidity Assessment Review) element of their programme aimed at reducing the quantity of loans on the balance sheets of the domestic Irish banks. They are doing this by curtailing SME lending. It is time that the Minister demanded to see the books on this element alone as it will give the answers to questions being asked by ISME since the bail out, stated Mark Fielding.

The Association has called on the Government to:
•    Install better management in bailed-out banks to oversee lending policy and its activity
•    Insist on honest and reliable reporting from the rescued banks through the Central Bank
•    Check on the PLAR targets and performance of both AIB and Bank of Ireland
•    An increase in SME finance availability by insisting on adherence to bank bail-out conditions
•    Increase promotion of the Government Partial Guarantee scheme and the microfinance scheme
•    Develop the alternative bank – a Strategic Investment Bank to introduce competition
•    Investigate other sources of finance that can be made available to viable cash starved SMEs.

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