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| Clear mismatch in government policy on bank lending destroying small businesses |
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By
Patricia Callan - Small Firms Association
May 31, 2011 |
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The Small Firms Association has commended the fourth quarterly report from John Trethowan, of the Credit Review Office, stating that it is “a 100% accurate assessment of what needs to be done to create a workable banking system for SMEs.” Patricia Callan, SFA Director, commented: “The Government and banks respectively should commit to implementing all of the recommendations immediately, and the Credit Supply Clearing Group should be reconstituted to assist with and to monitor their implementation”.
In particular, the report endorses the view long-held by the Small Firms Association that the prudential lending policies set down by the Central Bank are diametrically opposed to Government commitments to restore lending to SMEs. “The banking system cannot return to efficient working, where the overseeing body, i.e. the Central Bank, is insisting that the banks be ultra risk averse, so as not to incur any more bad debt liability, in direct contrast to a whole raft of senior Government Ministers who espouse the importance of getting credit flowing to small businesses again, as an essential pre-requisite to growth and job maintenance and creation. The pendulum has clearly swung too far”, stated Callan. The Credit Review Office is clear in the need for “some form of underwriting of credit to provide businesses with a demonstrable viable future (and jobs) to recapitalise themselves in situations where the lending would be outside the prudential lending policies of the banks and the Central Bank”. “A broad-based government-backed loan guarantee scheme, as operates successfully in many other developed countries needs to be introduced as a matter of urgency. The scheme announced as part of the jobs initiative is too restrictive and will not go very far in protecting or creating jobs”, commented Callan.
In addition, the Small Firms Association believes that the Banks in partnership with the County & City Enterprise Board network should deliver free consultation and training to existing businesses in all sectors on cashflow forecasting and the development of business plans for viability. The roles of skilled and experienced lenders should be protected within the banking sector at all costs.
Patricia Callan stated that “there has been an unfortunate information gap on credit demand and supply, since the government stopped doing the Mazars quarterly reporting into banking and ceased to hold meetings of the Credit Supply Clearing Group a year ago.”
The SFA had been given a commitment that this study would be built into the work of the Central Bank, however this has not taken place. The SFA believes that this is the best place for such a study to be carried on in a cost-effective manner. “Restoring trust and confidence is absolutely essential to business investment and thus growth in jobs.
This regular report is an essential component in this process”, commented Callan.
The SFA also endorsed the recommendation to raise the current threshold of €250,000 for appeals and emphasised how important it is that “all of the banks who lend to small businesses, not just AIB and Bank of Ireland, be part of the review process”, concluded Callan.
Patricia Callan,
Small Firms Association,
Confederation House,
84-86 Lower Baggot Street,
Dublin 2.
01 6051602
patricia.callan@sfa.ie
http://www.sfa.ie
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