ISME chairman JJ Killian has told an Oireachtas Committee that he does not believe banks are open for business and that credit tightening is hurting small businesses. But the country's two biggest banks have insisted they are lending to small businesses, despite the downturn.
Mr Killian told the Oireachtas Committee on Finance and Public Service today that banks had reduced overdraft facilities, stalled credit and added more conditions to loans.
He said more than half the respondents in a recent ISME survey said they had been refused access to more credit.
He also criticised the recent announcement of lending funds by several banks which he called a PR exercise. The Small Firms Association's director Patricia Callan said small businesses were closing because they did not have access to credit.
Irish Hotels Federation's CEO John Power said the bank recapitalisation scheme should result in increased credit rather than shoring up banks' balance sheets.
AIB managing director Donal Forde said the bank had become more rigorous when vetting loan applications. But he said this was appropriate in the current economic climate and he would not call that a tightening of credit.
Mr Forde said he understood that businesses felt that the bank was putting more pressure on them. But he defended the bank's lending, saying AIB was open for business for SMEs and had not increased its margins on loans.
On recapitalisation, Mr Forde said AIB did not need capital, adding that all banks were not the same. He also said the banks would know next week how much money would be available from a €30 billion European Investment Bank (EIB) fund for banks to lend to SMEs.
Bank of Ireland's head of retail banking Richie Boucher said the bank was looking to reduce its balance sheet but this would not affect its core Irish business.
But TDs were not convinced, and Fine Gael's finance spokesman Richard Bruton said banks were propping up delinquent property loans by putting extra charges on loans to SMEs.
Meanwhile, AIB has confirmed that it will be passing on the ECB's last 0.75 cut in interest rates to variable rate and tracker mortgage customers from close of business today.
AIB is also lowering overdraft rates for business customers by 0.75 points and for personal customers by 0.25 points. But savings rates are also being lowered by 0.75 points.
