Mr. John Trethowan:

I apologise as I thought everyone had this one sheet in front of them. I will return to it and go on with my 13th report which was issued several months ago.

The reasons for appeal requests for credit are now for working capital increases and for business investment. In the initial years of the office, the main reason was about survival. It is a positive note that the shift has moved from survival to investment.

We are seeing some demand for re-financing debts held by foreign banks which are exiting the Irish lending market. This is a cause for increasing concern as the supply side is becoming super-concentrated and we are down to the two pillar banks, Ulster Bank and PTSB for re-financing. Danske Bank is getting out of Ireland rapidly. Some of the appeals coming to our office are from Danske customers who are having great difficulty in getting finance from the other banks. This issue will become more significant in 2014 and into 2015.

Ireland has many family-controlled smaller businesses which does not lend itself to equity finance. The reliance on our banks will, therefore, remain high. We are trying to see what else can be done to increase the supply side for businesses. There are some new entrants appearing on the horizon but they are so small that they will not be game changers. New entrants in debtor finance could be very valuable to some small businesses which try to grow off their current capital positions.

The main banks probably have enough new safe business to achieve their business objectives without having to extend themselves with higher risk business. This, again, is a cause for some concern.

A recent Small Firms Association survey showed 40% of its members lacked confidence in approaching a bank for finance. There are several initiatives to increase the capabilities of smaller businesses to interact with their banks. Skillnets runs a regional programme on building financial capacity in small businesses. Attendance by the SME sector has been disappointing, however. I encourage small businesses to take these courses up as the skills on offer are required. The Department of Finance and others have been working on a business database. There are several State supports from the different Departments. Trying to find out how to access them has been very difficult for a small business, however. It will all be brought together in a simple interface whereby a business can enter its size, location and activity which will then bring up all available supports.

The office had a monitoring role of the pillar banks’ lending targets until last year. There has been some debate about the targets being removed. The diligence by which we are watching performance has not been removed, however. We now have four years of monthly trend performances collated. Accordingly, we have a fair idea of what to expect and when. I am pleased to report that in this year's first quarter, they had their best first quarter loan-sanctioning performance of all five years of monitoring. Given the three months that has transpired, both banks are in line to achieve or exceed last year’s performance in sanctioning lending. This may be helped by some of the re-financing they are doing from other banks.

We also continue to see a substantial amount of old loans with the banks being paid off. While they are sanctioning a lot of new money in the market, there is still a fair tide of old money being repaid from old loans. This is making the growth in their balance sheet sluggish.

Individual formal meetings take place each quarter between the pillar banks and the Department of Finance and the Credit Review Office.

I will return to the diagram I was discussing earlier as it seems to have been circulated to members. This is a one-page model that we have been using with trade bodies and accountancy practices in professional development seminars. Looking further down the sheet, members will note there are also other sources of finance such as government and non-government sources which can sometimes help finance a deal and make the gearing more attractive.

There is a view there is too much reliance on bank funding in Ireland and that other countries manage to finance their businesses with much less bank intervention. We have a predominance of very small businesses in the SME sector, many are family-owned and do not want to give up any equity control to someone else. This is a challenge, but if we can find a way to get non-bank finance for the amount which SMEs demand it would be helpful.

Many businesses which come to the Credit Review Office have negative capital because their reserves and capital are gone either through losses incurred in the past four to five years or property plays which went wrong. This does not mean the businesses are irrecoverable but they will have to be nursed back to health and this is a challenge as a number of banks have withdrawn and the businesses now rely on a small number of banks for finance.

With regard to going concern part of the graph we examine the balance sheet to test the quality of all of its parts as well as the profit and loss accounts of the businesses and its trading performance. We do this to establish the amount of free cash available after the profit and loss accounts have been considered to finance the repayments on the new loan being requested. If we can see enough free cash to service the loan we will ask the bank to make the loan. The key question is whether the bank or any other investor will lose money on the loan in the foreseeable future. It might not meet bank policy, but if we can see the loan is reasonably safe and cash can reasonably be expected to flow we will encourage the bank to make the loan. I apologise if I was disjointed but I hope I have given the committee a feel for the issue.