Ray Butler (Meath West, Fine Gael) | Oireachtas source

I have previously spoken on the matter of high loan refusal rates and the detrimental effects they were having on the recovery of SMEs which is vital for the country. At the time, it was suggested that banks were putting already pressurised businesses into further decline by withdrawing their overdraft facilities and restructuring these loans into term loans. Banks, on the other hand, were stating that their means of restructuring loans were in fact helping SMEs to continue to operate but yet again, the opposite seems to be the case.

A fuller and far bleaker picture has emerged in the latest numbers presented by the Central Bank. These figures exclude lending for property or to financial firms and are accepted as being a good measure of access to business credit. According to the Central Bank, lending to small businesses dropped by more than €500 million in the second quarter of this year, which is very disappointing. This latest decline represents a fall in lending of €1.9 billion to small and medium-sized enterprises in the 12 months up to the end of June 2012 compared with the same period last year. The financial squeeze applied now has tightened so much that total lending to SMEs now stands at just under €40 billion, with just €459 million of that figure accounting for new loans made in the three months to the end of June.

Furthermore, the independent organisation working in support of the Irish small and medium-sized enterprise sector, ISME, had already indicated that half of all applications for business loans were being turned down by the banks, prior to the release of the figures from the Central Bank. The picture becomes even bleaker. We already know that a high percentage of SMEs have restructured loans on their books with little or no access to loan or overdraft facilities from the banks.

All of this evidence puts a major question mark over the targets set for the AIB and Bank of Ireland to provide €3.5 billion each in new loans to small business this year. Clearly these targets are not being met on the ground. Once again it begs the question, if banks do not lend to small business and offer real support in these economically turbulent times, how can we seriously expect our economy to recover and grow?

For example, the recent report by the Credit Review Office states it has overturned 96 cases in respect of which banks refused credit. According to that office, which reviews lending by Allied Irish Banks and Bank of Ireland to small and medium businesses, 813 full-time jobs and 46 part-time jobs have been secured and an additional €9.6 million has been loaned by the banks. The report also states it will be a challenge for the two pillar banks to reach their lending targets of €3.5 billion each to small and medium firms in 2012. The Credit Review Office report also states that a significant amount of the lending is a restructuring of existing loans rather than new lending. Some of these loans were originally provided by Anglo Irish Bank and Bank of Scotland Ireland, both of which are winding down. Mr. Trethowan has expressed grave concerns about the length of time taken by the banks to process loans and instances banks declining potentially viable loans, with the effect of devastating the owner of a firm or farm.

While current Government initiatives are helping to address some of the problems faced by small business, if the pillar banks continue to minimise credit which SMEs need to remain viable, this sector will diminish to an unprecedented level. The banks must start lending to encourage growth in our economy. Without it, SMEs cannot and will not survive.

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