Brian Lenihan Jnr (Dublin West, Fianna Fail)

An independent review of credit availability was agreed in the context of the recapitalisation of Allied Irish Bank and Bank of Ireland. The purpose of the review was to ascertain the position on credit availability to small and medium sized enterprises in Ireland. The steering group for the review consisted of representatives of the Departments of Finance and Enterprise, Trade and Employment, Forfás, Enterprise Ireland, the Irish Banking Federation and the six main banks involved in lending to small and medium sized enterprises, business representatives from ISME, Chambers Ireland and the Small Firms Association. The final report of the review of lending to small and medium sized enterprises has just now been received. The report is quite extensive, running to almost 100 pages together with appendices. It will be considered by the Cabinet Committee on Economic Renewal, which is meeting now, and the intention is that it will be published shortly.

With regard to the extensions of lending capacity, Allied Irish Bank and Bank of Ireland re-confirmed their December commitment to increase lending capacity to small and medium enterprises by 10% and to provide an additional 30% capacity for lending to first-time buyers in 2009. If the mortgage lending is not taken up, then the extra capacity will be available to small and medium sized enterprises. AIB and Bank of Ireland have also committed to public campaigns to actively promote small business lending at competitive rates with increased transparency on the criteria to be met. Compliance with this commitment is monitored by the Financial Regulator. The banks make quarterly reports to ensure compliance and the first reports to the end of March 2009 were received on time.

The report is quite extensive and will require further consideration but from an initial reading there are a number of key conclusions. Total lending to the SME sector by the banks which participated in the review, which included not just Bank of Ireland and Allied Irish Bank but National Irish Bank and Ulster Bank, remains static in the period at €34.5 billion but the value of new applications for credit decreased by 42%. This conclusion is consistent with our own Central Bank published data.

Demand for credit remains significant, with 52% of those surveyed indicating they had requested credit in the previous year. Bank data indicates rates of refusal of credit applications of an average of 14% but a customer survey indicates an average refusal rate of 24% rising to 30%. The reason for that is interesting because often the customer takes an informal refusal as a refusal whereas a financial institution tends to take a more formal view in devising statistics. The difference primarily results from a difference in perception of what constitutes an application for credit. Banks do not record informal queries or requests but a customer whose informal request is rejected counts that as a refusal.

Refusal to businesses with fewer than ten employees were highest at 30%, with lower refusal rates for larger businesses. Requests for new credit were predominantly for working capital and cash flow reasons to address reductions in revenue and slow downs in debt collection.

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