Tom Fleming (Kerry South, Independent)
Link to this: Individually | In context

Question 61: To ask the Minister for Finance his views on the recent revelation by the Central Bank of Ireland that the amount of credit extended to the small and medium enterprise sector had declined in every quarter since 2010; his plans to address this issue; and if he will make a statement on the matter. [31087/12]

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context

The Central Bank publishes quarterly figures on credit advanced by Irish resident credit institutions to Irish resident SMEs. The figures are available to download at http://www.centralbank.ie/polstats/stats/cmab/Pages/BusinessCredit.aspx and the latest table is also attached. In relation to the total outstanding stock of loans to SMEs, there are three figures for consideration, as shown in table A.14.1 – total outstanding loans to all SMEs, total outstanding loans to SMEs excluding those engaged in financial intermediation, and total outstanding loans to SMEs excluding those engaged either in financial intermediation or property-related sectors. Based on the change in the outstanding stock of loans to SMEs between end-Q1 2010 and end-Q1 2012, as reported to the Central Bank by all resident credit institutions, the change in lending to SMEs has been as follows:

I am informed by the Central Bank that it is important to note that the change in the stock of loans reported on the credit institutions' aggregate balance sheet can sometimes reflect non-transaction related effects, for example changes in the reporting population, valuation changes due to fluctuations in exchange rate effects, or other reclassifications. As a result, the Central Bank publishes quarterly transactions or "flows" figures, which provide details on the true underlying flow of business during the quarter. These figures adjust the change in stocks in order to strip out the impact of any such non-transaction effects. Based on these underlying flows, the developments in the outstanding stock of loans to SMEs between end-Q1 2010 and end-Q1 2012 are as follows:

It is also important to note that SMEs are paying down existing debts at a faster rate than they are demanding new lending. The November 2011 Mazars survey on credit demand published by my Department showed that only 36% of companies surveyed requested bank credit in the period April-September 2011. This reflects the level of finance required by the companies surveyed, for trading at current levels, together with a reluctance to borrow for investment in new capital projects until foreseeable returns are more positive.

In terms of addressing the issue, as the Deputy is aware, the banking system restructuring plan creates capacity for the two Pillar Banks, Bank of Ireland and AIB, to provide lending in excess of €30 billion in the period 2011-2014. SME and new mortgage lending for these banks is expected to be in the range of €16-20bn over this period. This lending capacity is incorporated into the banks' deleveraging plans which allow for repayment of Central Bank funding through asset run-off and disposals over the period to 2013.

The Government has imposed SME lending targets on the two domestic pillar banks for the three calendar years, 2011 to 2013. Both banks were required to sanction lending, including lending for working capital purposes, of at least €3 billion in 2011, €3.5 billion this year and €4 billion in 2013 for new or increased credit facilities to SMEs. Both banks achieved their 2011 targets.

The Credit Review Office (CRO) reviews decisions by the pillar banks to refuse, reduce or withdraw credit facilities (including applications for restructured credit facilities) from €1,000 up to €500,000. The Credit Review Office is overturning 60% of the decisions referred to them, supplying €6.9m of credit, supporting 683 jobs in the SME sector. I would appeal to SMEs who have been refused credit by banks to avail of the services of the CRO.