Mr. John Trethowan:

I thank the Chairman and members for the invitation to discuss my 15th report, copies of which have been circulated.In my opening statement I will refer to the market, the challenges we see and I will comment on some of the cases with which we deal. In addition to the report, I have given the secretariat a copy of the Department of Finance Red C six-monthly surveys. These show an improvement in SMEs trends from the low point of the downturn in Q1 2013. My report also welcomes the improvement my reviewers see in the trading figures of SMEs and farms which used the Credit Review Office during this period. Profits have returned and businesses are now beginning to rebuild their capital – sometimes from a very low base.

The main finding in the survey, and from feedback from the banks and the SME trade bodies, is the lack of demand for credit. I hope this will start to improve as confidence returns to the market. The survey results show that banks are lending, at least to those applicants who make a formal request for credit. In my view the banks are playing their part in assisting the recovery and are helping the majority of SMEs and farms which request credit. Banks have returned to being prudent cash-flow lenders but security is also required. The SME or farmer needs to show a credible plan as to how the cash is to be generated to repay the borrowing and then will need to pledge some tangible assets to ensure that the debt can be covered. Much work has been done - a lot more work needs to be done - on raising the financial management capabilities in smaller SMEs and farms to meet the information demands of the "new normal" in banking today. This should not be viewed as onerous, as the information the banks request is largely the basics of what is required to run a business.

The 2014 report of the Joint Committee on Jobs, Enterprise and Innovation on access to finance for small and medium enterprises recommended that mentoring and coaching in the SME sector should take place. The SME-related State bodies such as the Credit Review Office, the Strategic Banking Corporation of Ireland, SBCI, Microfinance Ireland and the Supporting SMEs team have been working with each other and with the three SME trade organisations. They have undertaken extensive seminars with their members. In addition, each of the banks has been conducting extensive mentoring for their SME customers.

All of the cases with which the Credit Review Office deals involve some degree of financial challenge. We in the Credit Review Office receive good co-operation from the banks in trying to find a solution to these challenges where such a solution can be identified.

My report also identifies that the supply side has stabilised with the announcement that Ulster Bank will remain in Ireland, with Permanent TSB entering the SME market, and the arrival of a number of new small asset finance and creditor finance suppliers, and the developing presence of SBCI. The 2014 report also recommended the establishment of non-banking funding alternatives, and a trade body has now been established and can be accessed at , which has brought all of these alternative providers together for the first time.

Ireland has a strong story to tell in its support of the SME sector and, as per the recommendation contained in this committee's report in 2014, we continue to work closely with colleagues from SBCI, Microfinance Ireland, the credit guarantee scheme, Enterprise Ireland and the local enterprise offices, LEOs, in addition to assisting the development of the Supporting SMEs online tool and the communications campaign relating to it.

I will now speak about some of the challenges SMEs and farms continue to face. Some SMEs and farms remain in a weakened state and find it difficult to meet the banks' criteria and risk appetites in areas such as the capital stake they are required to put into a transaction. Banks will not take 100% of the risk in a lending deal. Lack of capital or equity remains the biggest challenge to the SME sector in Ireland. Also, recent improvements in SMEs' cashflows may not satisfy a lender looking for three years' sustained performance. There is often the overhang of failed non-core or buy to let investment debt, although the committee's 2014 recommendation that legacy debt should not be allowed to bring down a viable business is being generally respected by the banks. Given the turmoil many of the businesses and farms have been through, they may have a blemished credit bureau record, which can affect a bank’s willingness to lend in some circumstances, particularly regarding asset finance.

Some SMEs, which were in default of their repayments or which had a high level of property-related debt, have had their loans sold on to new lenders such as hedge funds. These loans were purchased at a discount and the likelihood is the new owners will take their profits at some point in the near or medium term by requiring a higher settlement figure or will take the value of the business through a receivership. These businesses will need to access finance from one of the remaining players in the SME and farm market to repay this settlement figure. While many of these businesses will be successful in obtaining refinance, some will still face some form of financing challenge. The Credit Review Office will be required at least until these two challenges, namely, the recovery of weakened SMEs and SMEs which have had their debts sold on to other lenders are resolved.

The number of cases reviewed by the Credit Review Office remains low. However, the number of cases being overturned by the banks in their own internal appeals process has increased and an increasing number of applicants are withdrawing from the Credit Review Office process to successfully renegotiate with the bank. The nature of the cases being reviewed has changed considerably. Since its inception in 2010, the average size of the credit facility being reviewed has increased from €86,000 to €341,000. In addition to increased scale, we also see a large increase in complexity of the cases, with solutions for business and personal debt being sought. In 2015, almost 30% of cases reviewed involved refinance of exiting banks or final restructuring by pillar banks.

Cases, while tracked as overturning bank decisions, more typically resemble a mediation or negotiation to find a solution satisfactory to the business and the bank rather than a straight black and white overturn. This requires more comprehensive engagement by the reviewer with the borrower and bank. Both banks have been co-operating well with this expanded model of engagement.