Public Affairs Ireland | Training and Development | Conferences

The head of the Credit Review Office, John Trethowan has issued the Office’s third quarterly report. The Credit Review Office serves to support small and medium business borrowers by allowing them to appeal an unsuccessful bank loan application. Outside of this formal review function, the Office also has a positive influence on the behaviours of both AIB and BoI, the two NAMA banks currently lending to the SME market.

First and second report conclusions

The first report issued in July 2010 found that SMEs were undercapitalised and businesses had tied capital up in property which is now inaccessible; there was a lack of experience among front line staff in dealing with lending requests; there was a need to asses applications for credit on future prospects rather than looking to the past; and there was a diminishing number of banks supplying the SME market. The second report in November 2010 found that the majority of commentary on SME lending relied on the supply side; there was no evidence that banks have been indiscriminately refusing credit on formal loan applications; and banks have now returned to be prudent cash flow lenders and SMEs, in turn, must learn to be cash flow borrowers once again.

Third report

Following on from finding in previous reports, the third report raised two new concerns that need to be addressed. The first of these is a concern with the size and quality of the debtors’ book in some businesses and the second is the problem of the widely held perception that bank borrowing is difficult to access. In the former case, businesses are encouraged to collect debts as soon as they are due so as to prevent losses from bad debts and thus preventing an otherwise healthy business being put into jeopardy. In relation to the latter, the report stressed that the frequently recited mantra ‘banks aren’t lending’ is in effect without challenge, clarification or empirical evidence. Whilst there are undeniable credit issues since the beginning of the economic downturn, there has been some progress despite conventional wisdom, particularly in the two banks under the remit of the Office: AIB and BoI. The report also concluded that given the low level of demand from small to medium level businesses, investment funding for improvements or expansion has subsequently suffered.

Situation of the banks

Both AIB and BoI, despite further funding and capital challenges, have affirmed their support to the domestic SME sector. Three key areas have been targeted to aid the progress relating to SMEs:

  • Increasing borrower confidence,
  • Up-skilling and training Staff,
  • Specific financial packages and supports.

Both banks have increased marketing and communications initiatives relating to lending to SMEs including increased finance for advertising and media campaigns. AIB held a number of road shows both to outline support for SMEs and for senior management to deliver leadership on its lending plan. BoI hosted a National Enterprise Week that allowed the bank to communicate to attendees that it is open for business. A programme for the up-skilling of 2100 staff members over the next two years has been launched at AIB and five separate courses are being run at BoI that build on lenders capabilities in reflecting on lessons learned, business credit assessments, new to bank proposals and credit oversights.

In relation to financial packages and supports, €20m seed capital will be made available for Enterprise Ireland supported projects at AIB. Other funding allocations include €100m for environmental funding; €500m for a small business recovery scheme; €60m for the agricultural asset fund; and €85m for the SME asset equipment fund. BoI are in negotiations with the European Investment Bank and are offering a €100m loan fund and offering borrowers access to more attractively priced lending. €100m has been allocated to a Developing Business Fund, €250m to a Business Support Fund, €100m to Environmental Projects Fund and €17m to a start-up and emerging sectors equity fund.