Written answers

Thursday, 3 October 2013

Department of Finance

Credit Availability

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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84. To ask the Minister for Finance the extent to which small and medium sized enterprises seeking accommodation from their respective lending institutions have been accommodated by their banks in each of the past three years to date; the extent to which unsuccessful applications have succeeded on appeal; if in the case of refusal any assessment has been done of the main reasons for refusal such as poor credit rating which can be attributed to other factors; and if he will make a statement on the matter. [41763/13]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I assume the Deputy is referring to the extent to which SMEs seeking credit have been accommodated by their banks. As the Deputy is aware, the Government recognises that SMEs are the lifeblood of the economy and will play a vital role in the recovery of employment growth in our country. One of the key priorities of the Programme for Government is to ensure that an adequate pool of credit is available to fund SMEs in the real economy during the restructuring and downsizing programme.

The Government has imposed SME lending targets on AIB and Bank of Ireland for the three calendar years, 2011 to 2013. Each bank was required to sanction lending of at least €3 billion in 2011, €3.5 billion in 2012 and €4 billion in 2013 for new or increased credit facilities to SMEs. Both banks have reported that they achieved their 2011 and 2012 targets and the recent Credit Review Office quarterly report commented “both banks are on track to achieve their €4bn loan sanction targets, assuming the pattern of previous years of a strong Q4 performance is repeated.”

AIB and Bank of Ireland are expected to lend to viable businesses both for investment and working capital purposes. The Credit Review Office is available to assist businesses which have been refused credit. The recent CRO report shows that the Credit Review Office upheld the credit appeal in 150 cases or 55% of cases decided. The upheld appeals have resulted in €18.5m credit being made available to SMEs and farms, protecting 1,521 jobs. This shows that there is a strong prospect of success for SMEs going to the Credit Review Office and I would strongly encourage SMEs refused credit to seek a review by the Office.

Taking the data in the recent demand surveys undertaken on behalf of my Department, covering the period April 2011 to March 2013, the average success rate of SMEs in having credit applications approved or partially approved is approximately 74%. It should be noted that there has been an increase in the number of applications fully approved in successive iterations of the demand survey to date. As regards the success or otherwise of SME appeals on bank lending decisions, the twelfth CRO quarterly report, published on 26 September, contains the following information pertaining to Allied Irish Banks and Bank of Ireland:

Banks’ Internal Appeals

2010-2013Cases ReviewedBank Decision UpheldBank Decision Overturned% Overturned
AIB Bank68644524135%
BOI3883454311%
Total107479028426%

In relation to bank refusals of credit applications, information contained in the most recent credit demand survey, covering the period October 2012 to March 2013, indicate that the main reasons for refusal include:

- Change in bank lending policy

- Inadequate payment capacity

- Account performance/history

- Inadequate security

- Deterioration in business financial performance

If the Deputy is seeking further details in this area, the report is available on my Department’s website at http://www.finance.gov.ie/documents/publications/reports/2013/SMEdemandREDCjun.pdf.

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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85. To ask the Minister for Finance the degree to which Government policy towards assisting small and medium sized enterprises by way of enhanced lending for working capital or other purposes has been successful to date; and if he will make a statement on the matter. [41764/13]

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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86. To ask the Minister for Finance the extent to which the lack of the availability of adequate working capital to the manufacturing and services sectors has inhibited employment expansion and-or economic growth as a result; and if he will make a statement on the matter. [41765/13]

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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91. To ask the Minister for Finance the extent to which adequate working capital remains available to the hotel and catering sectors; and if he will make a statement on the matter. [41770/13]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 85, 86 and 91 together.

Access to finance for SMEs is a key aspect of the Action Plan for Jobs 2013. It is the Government’s vision that all viable businesses operating in Ireland should have the opportunity to access sufficient finance to meet their enterprise needs in a manner that supports growth and employment in the economy. The working capital requirements of many SMEs, including those in the sectors referenced by the Deputy, are often fulfilled by short term credit in the form of overdrafts or short term loans.

The Government has imposed SME lending targets on AIB and Bank of Ireland for the three calendar years, 2011 to 2013. Each bank was required to sanction lending of at least €3 billion in 2011, €3.5 billion in 2012 and €4 billion in 2013 for new or increased credit facilities to SMEs. Both banks have reported that they achieved their 2011 and 2012 targets and the recent Credit Review Office quarterly report commented “both banks are on track to achieve their €4bn loan sanction targets, assuming the pattern of previous years of a strong Q4 performance is repeated.”

AIB and Bank of Ireland are expected to lend to viable businesses both for investment and working capital purposes. The Credit Review Office is available to assist businesses which have been refused credit. The recent CRO report shows that the Credit Review Office upheld the credit appeal in 150 cases or 55% of cases decided. The upheld appeals have resulted in €18.5M credit being made available to SMEs and farms, protecting 1,521 jobs. This shows that there is a strong prospect of success for SMEs going to the Credit Review Office and I would strongly encourage SMEs refused credit to seek a review by the Office.

The Government has taken a number of actions to improve the situation in relation to credit availability to SMEs. The credit stream available to SMEs now includes the Microenterprise Loan scheme which can facilitate up to €40million in additional lending to microenterprises over the next five years. In addition, the Credit Guarantee Scheme is designed for SMEs who, because of lack of collateral or because of the specialised sector they operate in, face difficulties in accessing bank credit.

It is vital that the banks continue to make credit available to support economic recovery. However, it is not in the interest of the banks, businesses or the economy for finance to be provided unless the business is viable and has the capacity to meet the interest payments and repay the sum borrowed.

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