The head of the Credit Review Office, which was set up to examine refusals by banks to lend to small businesses, has said the lending situation is improving.
In his latest quarterly report, John Trethowan said the recapitalisation strategy for the two main banks was achieving its objective of ensuring a functioning banking system is in place to support economic activity.
'While the situation is not perfect, the perception that banks are not lending is based on experiences from six to nine months ago,' he said.
But Mr Trethowan said banks were passing their higher funding costs on to borrowers when their loan facilities were being reviewed. He said he had asked banks to minimise the impact of these increases where possible.
His report shows that he agreed with the bank in 12 of the 19 applications reviewed since the CRO was set up at the start of April. He sided with the borrower in five cases and considered that more work was required from the borrower and the bank in two others.
Mr Trethowan said most commentary on the issue dealt with the supply of lending, but there was little or no research on levels of demand from firms, which most banks said was subdued.
He said he would consider all of the cases he had reviewed so far as difficult lending decisions. 'I find no evidence that banks have been indiscriminately refusing credit on formal loan applications,' he added.
Small business group ISME said it was 'concerned, but not surprised' by the findings. 'In particular the low level of applications analysed would confirm that companies, that are aware of the service, are still reluctant to use it,' the body said.
