A report on the demand for credit by small and medium enterprises shows that 36% of SMEs surveyed requested bank credit in the months from April to September 2011.
The independent report - commissioned by the Department of Finance and published today - shows that when applications pending were excluded, 70% of those requests were approved. Most of the demand was for cash flow and working capital purposes.
It also says that in relation to the 64% of SMEs who did not request bank credit in this six month period, 80% did not need credit or had sufficient internal reserves, while 7% believed the banks were not lending.
78% of firms who were refused credit said they did not agree with the reason provided by the bank for the refusal. Today's report also found that the timeframe for making decisions has increased significantly with only half the requests being processed within 15 days.
Business groups have expressed concern about the length of time being take to make lending decisions.
It also found that in 76% of cases where applications were declined, the bank did not inform the borrower of the right to an internal review.
The report states that in the six-month period surveyed 48% of small and medium sized businesses reported a decrease in turnover while 26% reported an increase.
Finance Minister Michael Noonan said the report brings further clarity to the pattern of credit demand by the important SME sector.
"This report will further enhance the ability of my Department, along with the Credit Review Office, to understand the business environment in which SMEs operate and their relationships with the banks. The results of this survey will be a valuable resource in informing policy decisions in this area and will be of benefit to all stakeholders'', he said.
He said he was determined that the lending targets set by the Government for the two domestic pillar banks for the years between 2011 and 2013 will be achieved.
''It is vital that the banks continued to make credit available to support economic recovery,' he stated. ''However it is not in the interests of the banks, businesses or the economy for finance to be provided unless the business is viable and has the capacity to meet the interest payments and repay the sum borrowed,'' he added.
Longer timeframe worries business groups
The director of the Small Firms Association expressed concern that 30% of SME applications were being refused, saying each refusal represented another firm under threat of closure of not able to get off the ground.
Patricia Callan said banks were taking too long to give customers a decision and were not encouraging appeals. "This is unacceptable", she said.
Pointing to the finding that only half of requests were being processed within 15 days, she said this was the time limit after which a borrower could treat the failure to decide as a "constructive refusal" to go to the Credit Review Office.
Chambers Ireland deputy chief executive Seán Murphy said that, given the country's economic circumstances, a decline rate of 30% was not unexpected.
But he said that when pending loan applications were included, the approval rate was 54% and the refusal rate 23%. Mr Murphy also noted the high level of loan applications with decisions pending at 23%.
"It is vital that all banks commit to responding to credit requests within 15 days as the decision making timeframe has lengthened recently," he said.
ISME expressed concern about the report, saying it confirmed that access to finance for SMEs was deteriorating. Chief executive Mark Fielding reacted to the report on RTÉ television earlier.
The Irish Banking Federation welcomed the report, saying it pointed to the impact that trading activity and in particular profitability had on banks’ credit decisions.
IBF chief executive Pat Farrell said the banking sector remained "fully committed" to supporting SMEs, but said the main consideration for all lenders must be the viability of firms applying for credit.
"At the same time, the study points to areas where lenders’ own processes can better accommodate the needs of the business borrower and where further business supportive initiatives can be developed," he said.
Report backs "subdued demand" claims - CRO
The Credit Review Office has issued its sixth quarterly report, with reviewer John Trethowan saying the figures from the Department of Finance had borne out the banks' contention that demand for credit from businesses was subdued.
In his last report, Mr Trethowan said it would be tough for AIB and Bank of Ireland to meet their targets of €3 billion of lending for this year. Today, he said the situation had improved, but he would reserve final comment until his next report.
He said banks appeared to have returned to having "traditional prudent cashflow lending" at the centre of their lending policies. But he said these policies were being "somewhat rigidly applied", and had the potential to result in some viable businesses being unable to access credit. Mr Trethowan said both AIB and Bank of Ireland were continuing to improve staff training in this area.
