Tánaiste outlines Government steps to get credit moving for business

The Tánaiste and Minister for Enterprise, Trade and Employment, Ms. Mary Coughlan, T.D., today (Tuesday, 2 June 2009) said that the Government’s focus in addressing serious issues in the banking sector has been on the needs of the wider economy including the enterprise sector. She said that a proper functioning banking sector was central to our economic recovery as it will facilitate appropriate lending to our entrepreneurs, especially to SMEs.

The Tánaiste said: “There are instances being reported of viable businesses being refused credit and some representative bodies are suggesting such refusals are in the majority. As against this, banks are reporting refusals are slight and that falling demand for credit accounts for reduced lending levels. There is a perception that there is limited credit availability and this can be damaging at a time of fragile business and consumer confidence.

“As part of the banks’ recapitalisation package, the Government decided to have an independent review of bank lending to try to have an objective assessment of the current lending situation. This process, which is being undertaken by Mazars, is underway and although originally only the two recapitalised banks agreed to participate and fund the review, now all the six leading banks are engaged in the project. The results of this review will be available later this month and this should allow all stakeholders have an objective view of the state of lending.”

The Tánaiste said that anecdotal cases and the results of individual surveys, from the banking sector and from the enterprise sector can be useful in highlighting the generality of the issue but specific results should be considered in a critical and objective manner.

Speaking about the ISME survey, which claimed that 58% of businesses it surveyed had applied for credit and had been refused by their banks, the Tánaiste said that these findings needed to be put in context.

The Tánaiste said that about 100 ISME members out of 1200 approached reported a refusal of their credit application. She said that the banks were telling their own stories and have indicated that their refusal rates are between 10% and 20%. She said that she believed the real rate of refusal lies somewhere in between and that the Mazars Report would be a vital tool in establishing the facts and then addressing problem sectors through the newly established Credit Supply Clearing Group*.

The Tánaiste reemphasised that the banks’ recapitalisation package was about securing the long-term health of the economy, about enabling our banks to get back to the business of lending to viable projects and about saving jobs. She said that the package included many supports for enterprises, and SMEs in particular, including:

• The recapitalised banks have committed to increasing their lending capacity to SMEs by 10% over 2008.
• A €100m environmental and clean energy innovation fund is also being established by each bank as well as a further €15m each to new or existing seed capital funds.
• Irish SMEs are covered by the Code of Conduct on Business Lending to SMEs which required banks to offer their customers an option for an annual review meeting, to include all credit facilities and security, including collateral. Banks are also required to treat all credit applications on their merits, to inform customers of the basis for decisions made and to have written procedures for the proper handling of complaints. Where a customer gets into difficulty the banks will seek to agree an approach to resolve problems and provide reasonable time and appropriate advice. Entrepreneurs applying for bank facilities, therefore, have a direct means to enquire from their banks why lending decisions are being made and to challenge any unreasonable terms being applied through the formal complaints procedure.
• Three Banks are providing funding for SMEs on foot of €300m facilities provided by the European Investment Bank to assist developing SMEs.

The Tánaiste concluded by said that the Government has also now approved formal arrangements to reduce the payment period by central Government Departments to their business suppliers from 30 to 15 calendar days. This commitment will have effect on all valid invoices received on and from 15 June 2009 and should help ease cash flow difficulties for SMEs.

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