Credit Review Office decisions led to €9.6m extra in loans

Monday 08 October 2012 23.28
John Trethowan has published his latest research on lending by pillar banks
John Trethowan has published his latest research on lending by pillar banks

The office that reviews lending by AIB and Bank of Ireland to small and medium business says it has overturned 96 cases where banks refused credit.

This has secured 813 full-time and 46 part-time jobs and seen an additional €9.6m lent by the banks since the office was established in April 2010.

The head of the Credit Review Office said it would be a challenge for the banks to reach their lending targets, but he believed they may be achieved.

The two pillar banks have a target of lending €3.5 billion each to small and medium firms this year.

John Trethowan's latest report - his ninth quarterly review - shows a significant amount of the lending is not new, but replacing old loans.

Some of these were originally provided by Anglo Irish Bank and Bank of Scotland Ireland - both of which are winding down.

Mr Trethowan said that effectively there are three active players in the Irish market - AIB, Bank of Ireland and Ulster Bank, who are supported by a small number of specialist and debtor finance companies.

''Given the current market perception of the Irish economy it is unlikely that any significant new players will enter the market in the future,'' the head of the Credit Review Office said.

Warning of low competition levels for lending

He added that the resulting ''competition among the few'' will require the actions of the main players to be closely watched by regulators and commentators.

Mr Trethowan said he had concerns about the length of time it took banks to process loans.

He also said his team were disheartened to find banks declining potentially viable loans with the effect of devastating the owner of a firm or farm.

He added that he was disappointed by the reaction of bank executives to his last report when he called for more enterprise risk taking on new loans.

Mr Trethowan said he has always given credit to the two pillar banks, as well as Ulster Bank, for the lending and support which the SME sector is receiving.

But he said that some of the appeals to the Credit Review Office fall short of being customer driven responses. He said that more effort, lending skill and customer focus is required to find workable solutions to challenging situations.

Mr Trethowan urged businesses seeking credit to ensure that a formal written application is made in all cases.

''It is vital SME and farm owners do not feel dissuaded from applying for credit either through the comments or actions of a few bank frontline staff, or by negative commentaries in the media,'' he stated.

Over the past three months under review, the Office of Credit Review said it received 36 eligible applications from SMEs who were refused credit by AIB and Bank of Ireland. Work is ongoing in 12 cases, while three were withdrawn.

Of the 21 cases completed in the latest quarter, 14 bank refusals were overturned. The CRO said this resulted in the two banks supplying €1.18m of credit which supported 106 full-time and part-time jobs in the SME sector.

Since its establishment, the office has taken 1,741 calls to date while its website had 32,524 hits.

In today's report, Mr Trethowan said that as economic conditions improve, demand for credit will improve.

''Demand will come across the board but will include SMEs which are now in a more challenged financial conditions. Banks' support for all viable and potentially viable SMEs to grow will be an essential element of the recovery when it comes,'' he added.

He said that even today many of these businesses, which can show a route to recovery, need to be supported as the jobs they provide are easier and cheaper to protect than the potential (and cost) to create new jobs in current economic conditions.

''The onus here is on SME owners to ensure they have robust business plans and competent management - not on banks to support the status quo on marginal business,'' he said.

AIB says it is committed to SMEs  

The head of Business Banking at AIB has said that the bank is unequivocally committed to SMEs in Ireland as they are vital in restoring the country's economic growth.

Speaking on RTÉ's News at One, John Webb said AIB had approved over 20,000 applications for SME credit this year, which he said was a 90% acceptance rate.

He said AIB is determined to work with customers to ensure those with viable businesses get access to credit they need.

Reacting to comments by the Jobs, Enterprise and Innovation Minister Richard Bruton in the Irish Examiner today, Mr Webb said AIB had not "recoiled" from lending to small business.

He said the bank had launched two new funds this year, the job creation loan fund and the agri-investment fund.

He said this is on top of €400 million in dedicated loan funds that AIB is making available to promote growth and encourage increased investment in SMEs.

He added that many customers are struggling to demonstate viability and this is one of the biggest challenges facing SMEs.

But Mr Webb said AIB is encouraging frontline and credit-line staff to work with customers to see if proposals are viable.