Ireland has the second lowest approval level for small business loan applications in the euro zone, coming just ahead of Greece.
This is according to new research published by the Central Bank today.
The research is likely to reopen the debate as to whether the country's bailed out banks are open for lending to Irish business.
The Irish SME Credit Supply and Demand, Comparisons Across Surveys and Countries report comes from two economists at the Central Bank.
The research revealed that SMEs are twice as likely to have a business loan application rejected compared to the euro zone average for loan refusals.
It said that high rejection rates in Ireland cannot be explained by the quality of the pool of potential borrowers.
More than 25% of loan and overdraft applications from small business were rejected in recent months. That compared to one in 28 in Germany.
The report also found that Ireland has the euro zone's second highest rate of discouraged business borrowers.
The Central Bank economists recommend that steps must be taken to improve perceptions of lending institutions among potential borrowers to encourage lending.
Changes in terms and conditions of bank credit, including interest rates, collateral requirements and the size of available loans, in Ireland are also among the least favourable in the euro zone, the study showed.
The Central Bank report also said that on the demand side, Irish credit demand is at or close to the euro zone average.
The research showed that the volume of loans outstanding to SMEs by March of this year had decreased to 2005 levels.
Gross new lending to SMEs amounted to €407m in the first quarter of 2012, down 29.6% from the fourth quarter of 2011 and down over €700m from the fourth quarter of 2010.
Report 'flies in face of wisdom' - IBF
The Irish Banking Federation said the report flies in the face of recent wisdom.
One of the authors of the report said the study definitively shows Ireland to be one of the toughest places in the euro area for small businesses to get a loan.
He rejected criticism of the report from the Irish Banking Federation, who said the only definitive report on lending was the Government-commissioned Mazars report, which said that banks were meeting the demand for loan applications from small businesses.
Speaking on RTÉ's News at One, Central Bank economist Fergal McCann said his study uses the Mazars report, alongside a ECB/European Commission (SAFE) survey, to give a more accurate picture of the situation.
Mr McCann said regardless of which set of figures you use, Ireland ranks second only to Greece in the number of rejections for loans to small business.
"What we see definitively, regardless of whether we use the Mazar or the SAFE surveys, is that on the supply side, Ireland does appear to be one of the toughest environments in the euro area, whereas on the demand side, Irish firms appear to be looking for finance at something like a regularity that is similar to the European average," he said.
He rejected claims by the IBF that the survey was "populist spin".
"The Central Bank is an independent institution. All we have done in this report is place Ireland in a ranking of European countries using two useful and valuable date sources and trying to come up with as consistent a view as possible. And spinning doesn't come into it whatsoever," he added.
AIB said the bank exceeded its SME lending target of €3 billion in 2011 and is 17% ahead of its year to date target of €3.5 billion for 2012.
"To date this year AIB has sanctioned 92% of formal applications," it added.
However the bank did acknowledge that today's credit process is more extensive than it was in previous times.
It said it believes this is appropriate and "is in no way meant to be an obstacle to obtaining credit".
Report confirms its worst fears - ISME
ISME has said the report confirms its worst fears. The association has called on the Government to immediately demand full and complete disclosure from the bailed out banks on lending to SMEs.
Chief Executive Mark Fielding said bankers are not telling the full story.
He said: "While Irish banks have been recapitalised with enormous fiscal injections, the truth of the matter is the bailed-out banks are not fixed, rescued bankers continue to utter untruths, banking reform is delayed and banking policy is turning good business bad.
"These same Irish banks refuse to lend to viable small and medium enterprises."
In a statement, the Irish Hotels Federation said Irish hotels continue to face unjustifiable difficulties in accessing appropriate levels of credit from financial institutions.
It said 39% of hoteliers have experienced difficulties accessing standard or normal credit facilities from their banks over the last year, according to recent findings from its quarterly industry barometer.
This has been going on for too long - PIBA
PIBA, the country's largest group of financial brokers, has called for greater competition in the Irish market.
It said the report on bank lending "lifts the cloak of pretence that the banks are willing to lend to anyone other than a chosen few".
PIBA added: "The tragedy is that it has been going on for far too long and indeed worsened in the first quarter of this year over the last quarter of last year."
The Irish Exporters Association has called for the immediate release of the Government’s Credit Guarantee scheme.
It states that the annual IEA survey of financial practices of Irish exporters supported the Central Bank's findings.
The main finding was that 28% of exporters were experiencing difficulties in obtaining trade finance for their business.
Bank of Ireland has said that in the six months to the end of July, it received approximately 33,000 applications for credit and approved almost 27,000 (over 80%).
Bank of Ireland Business Banking Director Mark Cunningham said the report indicates that the share of firms that require but do not apply for credit, due to the belief that they will be rejected, is double the euro area average.
Mr Cunningham added: "It is a concern for us that a significant number of SMEs still believe that banks are not lending.
"Research from the Mazars Study suggests that these SMEs are forming their views from the information they receive from a wide variety of sources rather than their own personal experiences."
The Oireachtas Joint Committee on Finance, Public Expenditure & Reform will consider today’s report when it meets in September.
