In Practice
ISME Reports a Deterioration in SME Bank Lending
By Mark Fielding, Chief Executive ISME
Mar 2, 2010 - 11:23:06 AM

• Clear evidence that Banks have ‘shut up shop’.

• Over half of businesses (55%), were refused funding.

• Business closures and job losses directly linked to lack of credit.

• Government intervention required to save thousands of businesses.

Details of the ISME Bank Watch Survey, issued on Monday, 1st March, confirm deterioration in bank credit for SMEs, in the three months to end of February. More than half of loan and overdraft requests have been refused, despite the banks assertions that they are ‘open for business’. The Association outlined that the Government now has no option but to immediately intervene through the NAMA process and force the banks to start opening up lending channels to small businesses. Any banks that fail to comply should automatically be refused any further state assistance with their recapitilisation programme.

The results of the survey, which attracted almost 800 responses, provide a strong indication of the current lending environment for SMEs. For instance:

• 55% of companies who applied for funding in the last three months were refused credit by their banks, in comparison to 42% in October 2009 and 20% in May 2008, Bank Watch Surveys.
  
• 32% of total requests were for overdrafts, with 47% for term loans.
  
• 74% of approved facilities have drawn down the finance either fully or in part.
  
• 80% of companies stated that banks are making it more difficult for SMEs to access finance.
  
• 58% of respondents have been with their banks for 10 years or more.

According to ISME Chief Executive, Mark Fielding, “The survey results confirm, contrary to what the bankers are telling us, that SME lending figures are deteriorating and that there is no evidence to suggest that they plan on opening up lines of credit anytime soon, in fact the opposite may be the case. The reality is that the banks are looking after their own interests and shoring up their own balance sheets to the detriment of the rest of the economy”.

“The “9 out of 10 loan approval” spin by banks needs to be knocked on the head, as it refers specifically to ‘fully completed formal” applications. The majority of SME owner/managers never get to that stage of the process as they are discouraged, either over the phone or at first meeting stage”.

“With Postbank and Halifax pulling out of the market, other foreign banks clearly looking for exit strategies, Bank of Ireland increasing lending charges and AIB’s refusal to accept switcher mortgages, together with these survey results confirm that, not only are the banks not lending, but the level of competition in Irish banking is rapidly diminishing. This is evidenced by those businesses that have been ‘fortunate’ to receive lending facilities, reporting increases in charges and interest payments associated with the facility.

The Association outlined that the following policies needed to be introduced as a matter of urgency:

1. The introduction of a third banking force to compete with the ‘big two’, with a particular emphasis on SME lending.
   
2. The Government guarantee scheme mooted recently by the Tanaiste needs to be introduced without delay.
   
3. The Competition Authority need to keep a close eye on developments within the banking sector to ensure that cartel-like operations stamped out.
   
4. The introduction of NAMA needs to include a commitment from the beneficiary banks to increase the level of lending to their viable SME customers.
   
5. The Government must use the influence of its shareholding in the banks to force them to start supporting their SME customers, something they have plainly failed to do.

“The banks have benefited massively from the taxpayers’ rescue package. In return they have consistently ignored demands for a return to normal, sustainable lending. The Government, a major shareholder must now force them to reciprocate by assisting viable business and in turn the economy. The role of the banks is crucial to the survival of Irish businesses. They should not be allowed to ignore this fact by once again maintaining their self interest to the detriment of everyone else” concluded Fielding.

Mark Fielding, Chief Executive ISME